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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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FORM 10-K



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ANNUAL REPORT UNDER SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934




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(Mark One)



| |   |                                                     
| | - | ----------------------------------------------------
| | x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934


For the Fiscal Year Ended December 31,
2001

OR



| |   |                                                         
| | - | --------------------------------------------------------
| | o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934


Commission File Number: 000-31019

ARGONAUT TECHNOLOGIES, INC.

(Exact name of Registrant as specified in its
charter)




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|                                                                          |  |                                                     
|------------------------------------------------------------------------- |  | ----------------------------------------------------
|Delaware
	(State or other jurisdiction of
	incorporation or organization) |  | 94-3216714
	(I.R.S. Employer
	Identification Number)

1101 Chess Drive


Foster City, CA 94404


(650) 655-4200


(Address, including zip code, or
registrants principal executive offices and telephone
number, including area code)


Securities registered pursuant to
Section 12(b) of the Act: None

Securities registered pursuant to
Section 12(g) of the Act: Common Stock, $0.0001 par
value

Indicate by check mark whether the Registrant
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and
(2) has been subject to such filing requirements for the
past
90 days.  Yes x  No o

Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of
Registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this form
10-K.  o

The aggregate market value of voting stock held
by non-affiliates of the Registrant was approximately
$26,713,884 as of February 25, 2002 based upon the closing
price on the Nasdaq National Market reported for such date. This
calculation does not reflect a determination that certain
persons are affiliates of the Registrant for any other purpose.
The number of shares outstanding of the Registrants common
stock on February 25, 2002 was 19,916,214 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Items 11, 12 and 13 and parts of Item 10 of
Part III are incorporated by reference from the
Registrants Proxy Statement for the Annual Meeting of
Stockholders to be held on June 6, 2002.









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TABLE OF CONTENTS



|                                           |                                                                                              |  |  |  |  |  |  | 
|------------------------------------------ | -------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                    
|                                           | Item 1.Business                                                                             
|                                           | Item 2.Properties                                                                           
|                                           | Item 3.Legal Proceedings                                                                    
|                                           | Item 4.Submission of Matters to a Vote of Security Holders                                  
|                                           | Item 5.Market for Registrants Common Equity and Related Stockholder Matters                
|                                           | Item 6. Selected Financial Data                                                             
|                                           | Item 7.Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                           | Item 7A.Quantitative and Qualitative Disclosures about Market Risk                          
|                                           | Item 8.Financial Statements and Supplementary Data                                          
|INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|                                           | Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
|PART III                                  
|                                           | Item 11. Executive Compensation                                                             
|                                           | Item 12. Security Ownership of Certain Beneficial Owners and Management                     
|                                           | Item 13.Certain Relationships and Related Transactions                                      
|PART IV                                   
|                                           | Item 14.Exhibits, Financial Statements, Schedules and Reports on Form 8-K                   
|SIGNATURES                                
|EXHIBIT 10.14                             
|EXHIBIT 10.15                             
|EXHIBIT 10.16                             
|Exhibit 23.1                              



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ARGONAUT TECHNOLOGIES, INC.

FORM 10-K

INDEX

|           |  |                                                                                        |    |      |    | 
|---------- |  | -------------------------------------------------------------------------------------- | -- | ---- | -- | 
|           |  |                                                                                        |    | Page
|           |  |                                                                                        |    |     
|PART I    
|Item 1.    |  | Business                                                                               |    |      | 1  | 
|Item 2.    |  | Properties                                                                             |    |      | 12 | 
|Item 3.    |  | Legal Proceedings                                                                      |    |      | 12 | 
|Item 4.    |  | Submission of Matters to a Vote of Security
	Holders                                   |    |      | 12 | 
|PART II   
|Item 5.    |  | Market for Registrants Common Equity and
	Related Stockholder Matters                 |    |      | 13 | 
|Item 6.    |  | Selected Financial Data                                                                |    |      | 14 | 
|Item 7.    |  | Managements Discussion and Analysis of
	Financial Condition and Results of Operations |    |      | 15 | 
|Item 7A.   |  | Quantitative and Qualitative Disclosures About
	Market Risk                            |    |      | 29 | 
|Item 8.    |  | Financial Statements and Supplementary Data                                            |    |      | 30 | 
|Item 9.    |  | Changes in and Disagreements with Accountants on
	Accounting and Financial Disclosure  |    |      | 51 | 
|PART III  
|Item 10.   |  | Directors and Executive Officers of the Registrant                                     |    |      | 51 | 
|Item 11.   |  | Executive Compensation                                                                 |    |      | 53 | 
|Item 12.   |  | Security Ownership of Certain Beneficial Owners
	and Management                        |    |      | 53 | 
|Item 13.   |  | Certain Relationships and Related Transactions                                         |    |      | 53 | 
|PART IV   
|Item 14.   |  | Exhibits, Financial Statements, Schedule, and
	Reports on Form 8-K                     |    |      | 53 | 
|SIGNATURES |  |                                                                                        | 55 |     

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PART I

The statements contained in this Annual Report on
Form 10-K that are not purely historical are
forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 and
Section 21E of the Securities Exchange Act of 1934,
including, without limitation, statements regarding sales of our
products, our future profitability and the future profitability
of our recently acquired subsidiaries, projected operating
results for 2002, and all similar statements regarding our
expectations, hopes, beliefs, commitments, intentions and
strategies for the future. Forward looking statements include,
but are not limited to, statements contained in
Item 1. Business, and Item 7.
Managements Discussion and Analysis of Financial Condition
and Results of Operations. Actual results could differ
from those projected in any forward-looking statements for the
reasons, among others, detailed in Risk Factors. The
fact that some of the risk factors may be the same or similar to
our past filings means only that the risks are present in
multiple periods. We believe that many of the risks detailed
here are part of doing business in the industry in which we
compete and will likely be present in all periods reported. The
fact that certain risks are characteristic to the industry does
not lessen the significance of the risk.




Item 1. Business

OVERVIEW

Argonaut Technologies, Inc. was incorporated in
the state of Delaware on November 10, 1994. We are a leader
in the development of innovative products designed to help
chemists engaged in the discovery and development of new
molecules increase their productivity and reduce their operating
costs without compromising the scientific integrity of their
research. Pharmaceutical, biotechnology and chemical industry
organizations worldwide have implemented our solutions to
achieve faster time to market for new products. Our instrument
products enable parallel synthesis of new chemical compounds,
allowing chemists to perform multiple experiments under a
variety of conditions in much less time than other traditional
chemistry development methods would take. Our products automate
many of the most labor-intensive steps of chemistry development.
In addition, our chemistry consumables products (reagents and
scavenger polymers) allow scientists to optimize their
experiments and yield better compounds than traditional
consumable products used for chemical synthesis. With our
instruments, software and chemistry consumables, companies can
efficiently capitalize on the wealth of potential new biological
targets being generated by new genomic and biotechnology
discoveries.

We began marketing our first product in 1996.
Currently, we market 9 different instrument products, software
and more than 50 chemistry consumables. In March 2001, we
completed the acquisition of Camile Products, LLC and renamed
this subsidiary Argonaut Technologies Systems, Inc.
(ATSI), a privately held instrumentation and
software company in Indianapolis, Indiana.

Through December 31, 2001, we have sold our
products to more than 1,000 customers in the pharmaceutical,
biotechnology, life sciences and chemical research industries
and have installed more than 2,300 instruments worldwide. In
February 2002, we completed the strategic acquisition of Jones
Chromatography Limited (and its wholly owned subsidiaries:
International Sorbent Technology Limited and Jones
Chromatography Incorporated), a privately held chemistry
consumables and instrumentation company (Jones
Group) headquartered in Cardiff, Wales, UK.

INDUSTRY

Background

The life sciences research industry is undergoing
fundamental change, resulting principally from the explosive
growth in gene discovery and the increasing demand for greater
efficiency in the drug discovery and development process.
Pharmaceutical Research and Manufacturers of America estimated
that in the year 2001, major pharmaceutical companies spent
approximately $30 billion worldwide on drug discovery
research and development. Advances in genomics, combinatorial
chemistry and high throughput screening have significantly
enhanced the drug discovery process. The publication,
Science estimated that the sequencing of the human genome
would provide an estimated 5,000 to 10,000 relevant new drug
targets over the next ten

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years. Chemists have been able to make these
advances in drug discovery by using new tools that simplify,
automate and accelerate the drug discovery process. Chemists are
discovering a large number of new drug candidates that are ready
for the drug development process through widespread use of these
tools. However, the pharmaceutical industry does not have
sufficient tools and resources to fully exploit the
opportunities presented by advances in drug discovery due to the
technological limitations of traditional chemistry development
for new drugs.


Chemical Discovery and Development

The process of discovering potential chemicals,
which could prove useful as new medicines, involves a number of
steps that can best be understood in the context of two phases:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Discovery Phase.Discovery is the process by which
	biologists and chemists develop drug targets identified through
	biology, including genomics and proteomics, the study of protein
	function, into biological screens. Chemists then test the
	millions of compounds produced by combinatorial chemistry using
	high throughput biological screens to identify possible chemical
	leads that could be drug candidates.
|
| |  | Development Phase.Chemists optimize the pharmacological
	(potency), pharmacokinetic (availability and specificity) and
	toxicology (safety) of chemical leads for human testing and
	approval during the development phase. The development phase can
	be further broken down into three stages:                                                                                                                        



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Lead Identification.During lead identification, chemists
	evaluate the hundreds of potential lead chemicals that could be
	drug candidates which may emerge from the discovery phase using
	a process. Chemists perform successive rounds of chemical
	syntheses to create numerous variants of the drug candidates to
	find compounds likely to have appropriate drug properties. They
	then work to optimize these compounds for their biological
	potency, thus creating lead compounds.                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | Lead Optimization.In pre-clinical development, chemists
	further refine a limited number of lead compounds into clinical
	drug candidates by applying additional chemistry methodologies
	in the pre-clinical development process. During this process,
	chemists make relatively small changes to the compounds in order
	to optimize their safety and pharmacokinetic properties.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | Process Development.During clinical development, chemists
	test clinical drug candidates in humans to demonstrate their
	safety and effectiveness, or efficacy. The successful outcome of
	clinical trails may result in regulatory approval to
	commercialize the new drug product. During this phase of
	development, chemists optimize the methods by which they will
	manufacture much larger quantities of the compound being tested.
	Manufacturing process development involves optimizing the
	chemical synthesis process in order to yield much larger
	quantities of the drug than were needed in the previous
	development phases. By optimizing and selecting the most
	effective method of compound synthesis, chemists reduce the cost
	of synthesis. This may be achieved by reducing the number of
	products used in synthesis, improving the yield of the desired
	compound and accelerating the time needed for synthesis.

Traditional Chemistry Methods for Chemical
Development

Chemists typically employ traditional chemistry
synthesis methods in their drug development efforts. Utilizing
traditional methods of chemical synthesis, a chemist performs a
series of chemical reactions, or transformations, until the
desired compound is obtained. Chemists generally achieve each
transformation in a four-part process:

Set-up and
Execution of Reaction

Chemists build a reaction apparatus as the first
step in chemical synthesis. Chemists often construct the
apparatus using a variety of traditional laboratory components
depending on the type of chemistry they are performing. Chemists
use the apparatus to combine chemicals, reagents and solutions,
which the chemist will often heat or cool to specified
temperatures under air and moisture-free, or inert, conditions.
The chemist then

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monitors reactions over time to determine
reaction progress. In traditional chemistry development, the
assembly of a specific apparatus and the periodic addition of
chemicals can often be very complicated and time-consuming
depending on the complexity of the desired reaction.


Product
Work-up

Chemists perform a product work-up as the second
step in chemical synthesis. Once the chemist determines that a
reaction has proceeded to completion, the chemist subjects the
reaction mixture to an extensive reaction work-up. During the
work-up the chemist stops the reaction and carries out an
initial cleanup of the reaction mixture prior to purification.
The chemist performs a series of washes with a variety of
solvents, a drying process and a filtration process during the
work-up. The chemist usually takes several hours to complete
this labor-intensive work-up process.

Product
Purification

Chemists perform product purification as the
third step in chemical synthesis. During this step, the chemist
isolates the desired product from its starting materials and
various byproducts. Product purification is an integral step in
chemical synthesis due to the fact that impurities may interfere
in the next chemical transformation or mask a drugs
potency and toxicity. Chemists typically utilize large volumes
of different solvents during the purification process. This step
often takes the chemists days to complete.

Product
Analysis

Chemists perform product analysis as the final
step in chemical synthesis. In this step, the chemist confirms
that the desired drug has been synthesized and isolated before
continuing on in the synthetic pathway or submitting the
compound for biological testing. Analysis requires a large
amount of data collection and is labor-intensive. Chemists must
repeat this laborious, four-step process until the desired
compound is obtained. The synthesis of a particular compound
could take months and even years to complete before researchers
can determine whether the compound has the desired drug
properties.

Limitations of Existing Chemical Development
Technologies

Traditional chemistry development methods have
the following limitations:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Limited Productivity.Traditional methods are time
	consuming, inefficient and labor-intensive. Industry experts
	estimate that chemists can create approximately 100 compounds
	per year using the traditional approach of performing one
	reaction at a time. Since it is not economically feasible for
	pharmaceutical companies to employ chemists in the large numbers
	necessary to take advantage of the thousands of expected drug
	targets, we believe that efficiency, or throughput in the
	development phase must increase dramatically.
|
| |  | Long Drug Development Timelines.Traditional methods require chemists
	to synthesize compounds one at a time in an inefficient,
	sequential process. This results in long drug development
	timelines, which delay product commercialization and reduce the
	commercial value of the exclusivity period provided by patent
	protection.                                                                                                                                                                                                             
|
| |  | High Cost.Traditional methods are expensive due
	to the time and labor required of a chemist to produce a single
	compound. In addition, companies utilizing the traditional
	methods incur the costs associated with the high volumes of
	solvents and chemicals utilized and the expense associated with
	their disposal.                                                                                                                                                                                                                        
|
| |  | High Drug Candidate Failures.Traditional methods limit the number
	of compounds synthesized, which can lead to companies or
	chemists selecting sub-optimal drug candidates, often resulting
	in drug candidate failures. These failures greatly increase the
	average length of time and cost required to bring a specific
	drug to market. If a drug candidate fails during clinical
	trials, a company must incur the time and expense of repeating
	all of the development steps or face abandoning the project
	altogether. The               

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| |   |                                                                                                                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | cost of a failed candidate increases
	significantly as it progresses to later stages of the
	development process.                                                                                                                                                                    
|
| |  | Lack of Flexibility.To date, chemists have lacked flexible
	tools and systems to easily perform the wide variety of complex
	experiments required for chemistry development. Instead,
	chemists have had to repeatedly assemble various components into
	complicated systems.        
|
| |  | Difficulty of Use.The steps required for a chemist to
	put together an apparatus and perform the reaction, work-up,
	purification and product analysis are difficult to execute.
	Therefore, many of these complex chemistries require skilled
	chemists with many years of training.

These limitations restrict the ability of
pharmaceutical and life sciences companies to fully capitalize
on the large number of new drug candidates resulting from the
significant technical advances in drug discovery. In order to
take advantage of these advances, we believe that pharmaceutical
and life sciences companies will need to increase productivity,
shorten the drug development process and reduce costs. We
believe that these objectives will be achieved through advances
and innovations in chemistry development technologies and tools.

THE ARGONAUT SOLUTION

We design, manufacture and market instruments and
reagents that increase the productivity of chemists, thereby
accelerating and improving the chemical development process, and
therefore, the likelihood of developing a successful new drug.
Our products enable chemists to rapidly synthesize a wide range
of compounds at a reduced cost. We design and develop products
using extensive customer assessment, validation and testing. We
intend to promote our products as the laboratory standard for
chemists and the industry standard for companies seeking more
efficient methods of addressing their increasing drug
development needs. We believe our technology provides the
following key benefits over traditional chemistry development
methods:

Increased
Productivity

We design our systems to simultaneously
synthesize many distinct chemical compounds by automating many
of the labor-intensive aspects of the experiments. Using our
systems, chemists can save significant time and effort while
performing a greater number of experiments. Chemists can create
approximately 100 compounds per year using the traditional
approach of performing one reaction at a time. The same chemist
can create between 1,000 to 7,500 compounds per year, using
our products.

Reduced Drug
Development Timelines

Through parallel synthesis and automation, our
products enable chemists to optimize drug candidates faster by
producing a significantly larger number of compounds in less
time than traditional methods. By simultaneously producing
numerous variants of drug candidates, our tools provide more
comprehensive information for the management by chemists of drug
development projects. Our customers can identify and accelerate
the development of promising drug candidates through the use of
improved data, thus reducing drug development timelines.

Reduced
Costs

We believe that reactions performed in our
systems versus those performed using traditional chemistry
methods for development could result in significant cost savings
per compound by allowing chemists to reduce labor hours and
solvent usage. In addition, by synthesizing more drug
candidates, our products provide greater amounts of information
and enable companies to abandon poor drug candidates sooner;
thereby eliminating the costs associated with later stage drug
failures.

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Improved
Intellectual Property Positions

Chemists can significantly increase the number of
chemical compounds synthesized by using our tools. As a result,
we believe that pharmaceutical companies may be able to improve
their patent and other intellectual property positions by
submitting more detailed claims with their patent applications
covering a wider variety of compounds.

Flexibility

Our products are flexible and chemists can
perform a wide range of chemical reactions, from simple
reactions to complex, multi-step reactions that require inert
environments using our tools. As a result, chemists are able to
more easily perform complex and difficult reactions, thereby
encouraging innovation on the part of chemists.

Ease of Use

Our systems are designed to make the
labor-intensive steps of performing the reaction, work-up,
purification and product analysis faster and easier for
chemists, and can be operated by chemists with minimal product
training.

OUR STRATEGY

Our objective is to become the leading provider
of productivity enhancing tools for all stages of the chemistry
development process. In order to achieve this goal, we have
implemented the following strategy:

Focus Initially on Industry
Leaders within the Pharmaceutical Market

We are initially focusing on the large and
fast-growing sector of drug development within the
pharmaceutical market. We have targeted leading pharmaceutical,
biotechnology and life sciences companies as well as academic
institutions for our principal marketing efforts. We believe
that these customers provide the greatest opportunity for
maximizing the use of our products and that early adoption by
these industry leaders and academic institutions will promote
wider market acceptance of our products.

Continue to Expand Our Chemistry
Consumables Business

In addition to our instruments, we develop,
manufacture and market reagents and other consumables for our
products. We plan to continue to leverage our installed base of
instrument products through the sale of reagents and other
consumables to our existing customers as well as new customers.
In addition, we intend to expand our chemistry consumables
business by offering additional products. With the recent
acquisition of Jones Group, our product offering in the
chemistry consumables business is projected to exceed 40% of
2002 revenues.

Continue to Establish Product
Development Collaborations

We are continuing to pursue collaborations with
pharmaceutical and biotechnology companies in order to further
develop and enhance our existing technology platforms and
products, as well as develop new products. To date, we formed
7 consortia or collaborations with industry leaders to
define product requirements and to perform validation and
testing. During 2001, we announced a consortium with Pfizer and
ICI, PLC and a multi-year research and development collaboration
with Pfizer. We intend to follow this model in order to enhance
market acceptance of our current and future products. In
addition, we intend to selectively in-license and commercialize
technology that can enhance our total product portfolio.

Build Global Customer
Relationships Through Direct Sales

Our marketing approach is based on a thorough
understanding of our customers specific chemistry needs,
which we develop through the close interaction of our direct
sales and applications support personnel with our customers.
Currently, we have 19 direct sales people and 12 field
application chemists supporting our

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customers worldwide. With the acquisition of
Jones Group, we will have a total of 30 direct sales people and
21 field application chemists. With this dedicated team of
professionals, we are able to build long term relationships with
existing customers, gain access to new accounts and expand into
new geographic territories.


Acquire Complementary
Businesses

We intend to pursue opportunities to expand our
core business by acquiring businesses that have technologies or
capabilities complementary to ours. In March 2001, we completed
the acquisition of ATSI, a privately held instrumentation and
software company in Indianapolis, Indiana. In February 2002, we
completed the acquisition of Jones Group headquartered in
Cardiff, Wales, UK. We may acquire additional software
development expertise to capitalize on the chemistry data flow
generated by our products. In addition, we intend to explore our
options regarding acquiring distribution channels in specific
geographic regions to speed our market penetration.

Expand into New Markets

We believe that our existing technologies and
products can be expanded and sold into additional markets. Our
capabilities enable us to address the needs of a wide range of
chemistries. As the use of productivity tools in drug
development becomes more visible, related industries are
beginning to investigate these tools. Other potential markets
include cosmetics, catalysts, and high-margin specialty
chemicals.

PRODUCTS

Our current products focus on increasing the
productivity of chemists at each stage of the chemical research
and development(R&D) process. One of the benefits of using
our products is to accelerate the tasks within each of the
stages of the R&D process. Our products address two distinct
groups of researchers  chemists who work in the
Development phase and the Process phase of the R&D process.

Instruments

We offer the following instrument products to
chemists working in the development and process phases of
chemical research and development. Our instrument products fully
automate and perform in parallel many of the repetitive tasks
that a chemist has to perform manually. Instrument products
comprise approximately 65% of 2001 net sales.

Trident®:

Chemists performing lead identification in the
development phase use our Trident family of products. This
product family includes the Trident Library Synthesizer, the
Trident Workstation and the Trident Sample Process Station. The
Trident Library Synthesizer is used to synthesize libraries
between one thousand and two thousand compounds. These libraries
typically consist of chemical compounds that are closely related
to a drug candidate identified in the initial drug discovery
process. The Trident Workstation, which is a semi-automated
bench-top system that performs parallel synthesis, and the
Trident Sample Process Station, which is an automated parallel
work-up and purification system, both can be used together with
the Trident Library Synthesizer or as stand alone products.

Quest®:

Chemists use our Quest family of products
primarily for lead optimization applications in the development
phase, where their goal is to refine drug candidates identified
during lead identification. The Quest product line provides a
personal synthesis tool that chemists can use to perform a broad
range of chemistry methodologies. It reduces the amount of
laboratory space required, and is cost effective for use by most
pre-clinical groups. The Quest product line is comprised of the
Quest 210, Quest 205 and FirstMate®, all of which
use our proprietary vertical mixing system.

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Endeavor®:

During the process phase of R&D, chemists use
our Endeavor instrument to perform reactions requiring greater
than standard atmospheric pressures and gas-phase reagents, such
as hydrogen. Our Endeavor instrument is a semi-automated,
parallel, catalyst screening system which allows a chemist to
perform up to eight such simultaneous reactions.

Surveyor®:

Our Surveyor instrument is a fully automated
ten-reactor synthesizer that allows the chemist to vary the
synthesis conditions in each reactor during the process phase of
R&D. In addition, the Surveyor automates the tedious
activity of mixture sampling and analysis. We developed the
Surveyor as part of a consortium of five pharmaceutical
companies in order to meet the needs of clinical development.

CLARKTM:

CLARK is an automated laboratory reactor system
that is used during process optimization in order to find the
precise reaction parameters to make larger quantities of a
candidate. It can be scaled to address the specific needs of the
customer. Automatic lab reactors simulate chemical manufacturing
processes in the laboratory. The CLARK offerings include a
Research System, a Bench System, and a Pilot System to meet the
specific needs of a development organization.

Camile
TGTM:

Camile TG Software is a process development
program that offers the user the ability to quickly understand
and develop new processes as well as run experiments unattended.
This software is designed specifically for the constantly
changing requirements of the R&D environment. Camile TG
mirrors the same precise control logic found on the
manufacturing floor while also offering the flexibility needed
in R&D. Our customers use such simulation tests before
proceeding to production, in order to validate and refine the
safety and feasibility of new processes.

Chemistry Consumables

Chemistry Consumables comprise approximately 25%
of 2001 net sales. Chemistry Consumables are used throughout the
chemical development process.

ArgoGel®,
ArgoPore® and Other Reagent Products:

Chemists typically use our ArgoGel, ArgoPore and
polystyrene reagent products in performing lead identification.
To overcome the limitation of traditional reagents, we initially
formed a product development consortium consisting of four
pharmaceutical companies, Abbott Laboratories, Bristol-Myers
Squibb, Merck and Novartis Pharmaceuticals. We have developed
additional chemistry consumable products through collaborations
with Pharmacia, Parke-Davis and Stanford University.

Polymer Reagent and Polymer
Scavenger Products:

Chemists primarily use our polymer reagents and
polymer scavengers products during process development. Both the
polymer reagents and polymer scavengers are technologies that
allow chemists to accelerate the synthesis, work-up and
purification of traditional synthesis methods. Chemists involved
in pre-clinical process scale-up synthesize many fewer compounds
than chemists doing lead optimization. In addition, these
chemists are more likely to use traditional synthesis methods.
We, therefore tailor our polymer reagents to permit chemists to
perform a wide variety of important synthetic reactions. Our
Solution Phase Toolbox is a series of prepackaged polymers that
are used by chemists performing traditional work-ups and
purification processes.

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Services

We provide a variety of services for our
customers, which include installation of instruments, instrument
warranty services and instrument preventative maintenance
programs. Services comprise approximately 10% of our 2001 net
sales. In addition to the services provided with our instrument
product line, we also provide integration services for our
customers. Our integration services focus on creating a customer
specific solution for the chemists in the process phase of
R&D. Integration services typically involve the integration
of a CLARK system and/or CAMILE TG software.

Jones Group Products

The acquisition of Jones Group in February 2002
expands our product offerings. The Jones Group Products include
Solid Phase Extraction (SPE) and related sample preparation
products; chromatography accessories and consumables; specialist
chromatography and related instrumentation and High Performance
Liquid Chromatography (HPLC) and Gas Chromatography
(GC) silicas and columns. Medicinal chemists typically use
the products in the chemistry development phase of the research
and development process.

Solid Phase Extraction:

We now offer a wide range of sample preparation
products used to extract and purify samples, primarily in the
areas of analytical chemistry and combinatorial chemistry. We
manufacture sorbents that are subsequently packed into SPE
columns, 96-well high throughput SPE plates and flash columns.
In addition, we manufacture sample processing stations that are
designed to simplify the task of processing samples using
disposable Isolute extraction products.

Chromatography Accessories and
Consumables:

We are now the leading distributor of
chromatography accessories and consumables in the United
Kingdom. The product family includes vials and closures, sample
collection and storage and GC headspace applications.

FlashmasterTM:

Our FlashMaster family of is used for a variety
of purification applications. The systems offered range from low
cost personal purification systems, to high throughput parallel
purification systems, and a fully automated software controlled
system.

PRODUCT DEVELOPMENT STRATEGY

Our product development strategy is to combine
our expertise in chemistry and engineering with an understanding
of market needs to rapidly design and launch products that
fulfill these needs. We have a track record of quickly and
effectively developing solutions to our customers
problems. To understand market needs, we form product
development teams with our customers. Through this process of
forming product development consortia and collaborations with
our customers, we have developed innovative products that have
had extensive customer input, validation and testing prior to
commercial introduction.

Our consortia are non-exclusive arrangements in
which we bring together several companies, typically five to
seven, who share the need to solve a common problem. We meet
with consortium members on a regular basis during the product
development period to review product definition, specifications,
progress, validation and testing. We may give consortium members
prototypes for use in their research programs and we incorporate
their feedback into the final product. Members typically pay a
non-refundable participation fee, which may be credited against
future purchases of the product we develop. By participating in
our consortia, and becoming familiar with the performance and
operating characteristics of the product, we believe that
members can achieve a nine-month to one-year competitive
advantage in using the new technology we develop. Consortium
members often become the initial references during the product
development phase and

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initial customers upon our commercialization of
the product. We have used the consortium approach to develop the
Trident, Quest, Surveyor and reagent products.


Through our collaborations, we typically
in-license technology that we believe has significant potential
for commercialization. Typically, our partner will have
developed and tested a concept to the prototype level. We
further develop and enhance the prototype into a commercially
viable product. Our contributions include design for
manufacturing, cost reduction, safety and code compliance and
ease of use issues. Our partner is able to purchase the final
product at a substantial discount and may receive royalties on
product sales.

In June 1997, we entered into an exclusive
five-year License and Supply Agreement with Merck & Co.,
Inc. related to the technology used in our Quest product. In
2002, we will have exclusive ownership rights over the
technology with no future obligations to Merck. In exchange for
the right to this technology, we have granted Merck substantial
discounts on Quest and Quest related products. We used this
approach with the Endeavor product, which we developed in
collaboration with Symyx Technologies (Symyx). In August 1999,
we entered a license and supply agreement with Symyx related to
technology used in the Endeavor product. As of January 2002, the
license and supply agreement has been extended through
December 31, 2004 and provides a minimum annual royalty
payment to Symyx. Either party may terminate the agreement for
cause or insolvency.

In October 2001, we entered into a multi-year
research agreement with Pfizer Inc. During the agreement, we
will assess and develop new technologies and instrument systems
relevant to Pfizer Global Research & Development programs.
Under the terms of the agreement, Pfizer will fund
Argonauts assessment and development efforts related to
the new tools. Argonaut will have exclusive rights to
commercialize technologies developed within the collaboration.

During the fourth quarter of 2001, we formed our
fifth product development consortium comprised of two major
pharmaceutical and specialty chemical companies, Pfizer Inc. and
ICI, PLC, with the goal of developing a state-of-the-art,
multi-channel synthesizer for chemical process optimization.
Argonauts new process chemistry system will be designed to
deliver a fully automated process development solution, with the
flexibility and ease of a manual device. Each participating
company may receive one or more of the fully automated advanced
process development tools at the end of the collaboration

The following table lists our completed product
development consortia and collaborations:

|                             |  |                                       |  |                               |  |                          |  |                                               
|---------------------------- |  | ------------------------------------- |  | ----------------------------- |  | ------------------------ |  | ----------------------------------------------
|Trident                      |  | Quest                                 |  | Surveyor                      |  | Endeavor                 |  | Reagents                                      
|                             |  |                                       |  |                               |  |                          |  |                                               
|Abbott Laboratories, Inc.    |  | Abbott Laboratories, Inc.             |  | Aventis S.A.                  |  | Symyx Technologies, Inc. |  | Abbott Laboratories, Inc.                     
|Ariad Pharmaceuticals, Inc.  |  | Affymax Research Institute            |  | Agouron Pharmaceuticals, Inc. |  |                          |  | Bristol-Myers Squibb Co.                      
|Astra Zeneca International   |  | Alanex Corporation Research Divisions |  | Eli Lilly & Co.               |  |                          |  | Merck & Co., Inc.                             
|E.I. duPont de Nemours & Co. |  | Aventis, S.A.                         |  | Rohm & Haas Co.               |  |                          |  | Pharmacia Corporation                         
|Genetics Institute, Inc.     |  | Merck & Co., Inc.                     |  | Pfizer, Inc.                  |  |                          |  | Novartis Pharmaceutical, Inc.                 
|Merck & Co., Inc.            |  |                                       |  |                               |  |                          |  | Parke-Davis, Division
	of Warner-Lambert & Co.
|Merck KgAA                   |  |                                       |  |                               |  |                          |  | Stanford University                           

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CUSTOMERS

Our customers consist of a broad range of
companies in the pharmaceutical, life sciences, biotechnology
and chemical industries, as well as academic institutions.
Through December 31, 2001, we have sold our products to
more than 1,000 customers and, we have installed more than 2,300
instruments worldwide. Our leading customers include:

|                                                                                      |  |                                                                                        |  |                                                                                                                                   
|------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------
|Abbott Laboratories
	Amgen, Inc.
	Arqule, Inc.
	Array Biopharmaceuticals
	AstraZeneca |  | E.I. Dupont
	Eli Lilly and Company
	GlaxoSmithKline
	Merck & Company
	Monsanto Company |  | Novartis Pharmaceuticals
	Ortho-McNeil Pharmaceuticals
	Pfizer, Inc.
	Pharmacia & Upjohn Company
	Procter & Gamble Pharmaceuticals

No single customer accounted for more than 10% of
our revenue during fiscal year 2001.

SALES, MARKETING AND SERVICE

We base our sales strategy on understanding our
customers needs, recommending solutions and ensuring
successful implementation of that solution in our
customers research laboratories. Our approach is designed
to achieve customer satisfaction and build a long-term working
relationship with our customer.

Currently, our direct sales, marketing and
service organization include 84 full-time employees located in
North America, Europe and Japan. Our team of professionals is
comprised of senior account-oriented sales people, application
chemists, service engineers, telesales people and marketing
specialists who sell directly to our customers worldwide. We
have 30 direct sales professionals with an average of
12 years of experience in selling high technology products
to the scientific industry. In addition to their academic
expertise, the industrial laboratory experience of our sales
professionals is essential to their ability to understand our
customers needs. We have application chemists and service
engineers with expertise in both chemistry and engineering to
support our customers worldwide. We have professional marketing
communication specialists located in the United States, Europe
and Japan dedicated to providing local marketing programs. In
North America we have telesales personnel to support the direct
sales efforts by providing lead generation, lead qualification,
and consumable product sales and service sales.

We use distributors to provide local sales and
marketing in some foreign countries, including China, Australia,
Korea, Eastern Europe, Finland, Sweden, Denmark, Italy and
Spain. In these countries, we seek to maintain close contact
with our customers and potential customers by providing
application chemistry support and service support through our
worldwide direct field marketing organization. We have developed
both scientific seminars and technology transfer programs to
educate and train our customers. We conduct on-site seminars in
the use of our chemistry reagents, referencing important
scientific publications and research that validate their
successful usage. Typically 20 to 40 researchers at a given
customer site will participate in this type of scientific
seminar.

Our web site provides technical information
regarding the use of our instruments and chemistry consumables
for our customers. The combination of our telesales with readily
available technical information makes it very easy for a
customer to make routine purchases of our reagents and
consumables.

To increase awareness of our products, we have
arrangements with leading academic research institutions to
provide them with our products. In return our products are
validated by reputable institutions through published results in
leading scientific journals and the researchers creation
of application notes. We also work with universities to assist
them in creating and implementing teaching laboratories that
promote the scientific advantages associated with the use of our
products.

MANUFACTURING

A series of qualified outside vendors manufacture
most of our instruments and reagents to our specifications. Our
vendors then deliver the finished product to us for final
quality assurance testing.

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Instruments

Our instrument manufacturing staff is comprised
of skilled manufacturing engineers, documentation support,
material procurement and assembly support resources, which are
closely integrated within our product development group. We
focus these resources on the rapid development of manufacturing
processes and methods, which we transfer to our outside
contractors. Our contractors are responsible for ordering all
components from qualified vendors, inspecting, stocking,
assembling and testing the modules prior to shipment to our
facility. We typically qualify multiple manufacturing
contractors, and we develop the relevant manufacturing processes
internally, enabling us to maintain control of the manufacturing
program.

Chemistry
Consumables

Our chemistry organization develops, validates,
documents and initially manufactures our reagents at our
facility. During reagent development, we qualify outside
manufacturers, known as toll manufacturers, so that we can
outsource production as demand and volume increase.

Jones
Group

The recently acquired Jones Group has two
buildings located near Cardiff, UK where their consumables and
instrument products are manufactured. The space available at the
manufacturing facilities will accommodate the current and
near-term production levels.

INTELLECTUAL PROPERTY

As of December 31, 2001, we owned a patent
portfolio of eight issued U.S. patents and one issued foreign
patent as well as several pending U.S. patent applications.
Corresponding foreign patent applications have been filed in a
number of countries. Of these issued patents, five U.S. patents
relate to the reactor and fluidics technology incorporated into
our instruments. Several of our patent applications relate to
this technology and others relate to our reagent technologies.
We intend to continue to file patent applications covering any
new inventions incorporated into our products and technologies
as appropriate. In addition, we rely upon copyright protection
as well as trade secrets, know-how and continuing technological
innovation to develop and maintain our competitive position. Our
success will depend in part upon our ability to obtain patent
protection for our products and technologies, to preserve our
copyrights and trade secrets, and to operate without infringing
on the proprietary rights of third parties. Our issued patents
expire between 2018 and 2021.

We have an exclusive license from Symyx
Technologies relating to technology incorporated in our Endeavor
product. The exclusive license is in force through the term of
the license and supply agreement, as amended, which terminates
December 31, 2004.

BACKLOG

Manufacturing turnaround time has generally been
sufficiently short so as to permit us to manufacture to fill
orders for most of our products, which helps to limit our
inventory costs. Due to generally short time period between
order and shipment and occasional customer changes in delivery
schedules, we do not believe that our backlog, as of any
particular date, is an accurate indicator of actual net sales
for any future period. Backlog is therefore generally a function
of requested customer delivery dates and is typically no longer
than one to two months. The value of the backlog as of
December 31, 2001 and 2000 was approximately
$3.9 million.

COMPETITION

We anticipate that competition will come
primarily from companies providing products based on traditional
chemistry methods as well as companies that offer competing
products based on alternative technologies. In order to compete
effectively, we will need to demonstrate the advantages of our
products over well-established traditional chemistry methods and
alternative technologies and products. We will also need to
demonstrate the potential economic value of our products
relative to traditional chemistry methods and

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alternative technologies and products. Some of
the companies that provide products that compete with ours
include Mettler-Toledo AG and several smaller instrument and
reagent companies.


GOVERNMENT REGULATION

We are subject to various federal, state and
local laws and regulations relating to the protection of the
environment. In the course of our business, we are involved in
the handling, storage and disposal of chemicals. The laws and
regulations applicable to our operations include provisions that
regulate the discharge of materials into the environment.
Usually these environmental laws and regulations impose
strict liability, rendering a person liable without
regard to negligence or fault on the part of such person. Such
environmental laws and regulations may expose us to liability
for the conduct of, or conditions caused by, others, or for acts
that were in compliance with all applicable laws at the time the
checks were performed. We have not been required to make
material expenditures in connection with our efforts to comply
with environmental requirements. We do not believe that
compliance with such requirements will have a material adverse
effect upon our capital expenditures, results of operations or
competitive position. Because the requirements imposed by such
laws and regulations are frequently changed, we are unable to
predict the cost of compliance with such requirements in the
future, or the effect of such laws on our capital expenditures,
results of operations or competitive position.

EMPLOYEES

As of December 31, 2001, we had 154
employees worldwide. On December 31, 2001, we announced a
cost savings initiative that included a reduction in our work
force, after which we had 131 employees. After the recent
acquisition of Jones Group, we have approximately 250 employees
worldwide. None of our employees are covered by a collective
bargaining agreement. We believe that our relations with our
employees are good.




Item 2.Properties

Facilities

We occupy approximately 32,000 combined square
feet of leased office space and research facilities in Foster
City, California. These facilities serve as the base for our
marketing and product support operations, research and
development, manufacturing and administration activities. We
have leased substantially all of our space through the second
quarter of 2004. In addition, we lease approximately 13,400
square feet of office space in Indianapolis, Indiana, 1,880
square feet of research in Tucson, Arizona, 200 square meters of
office space in Muttenz, Switzerland and 200 square meters of
office space in Tokyo, Japan. These offices are the base
operations for our sales and support groups in the respective
regions. In connection to the acquisition of Jones Group, we
also own approximately 50,000 combined square feet in two
facilities located near Cardiff, United Kingdom. The facilities
serve as the base of operations for marketing and product
support operations, research and development, manufacturing and
administration for our European based activities. In addition to
these facilities, we also acquired a leased facility with 5,500
square feet in Lakewood, Colorado, which serves as the base of
operations for Jones Group in the United States. We believe that
our existing facilities are adequate for the present and that
additional space will be available as needed.




Item 3.Legal
Proceedings

From time to time, we may be involved in
litigation that arises through the normal course of business. As
of the date of filing of this Form 10-K, we are not a party
to any litigation that we believe could reasonably be expected
to harm our business or results of operations in any material
respects.




Item 4.Submission of Matters to a
Vote of Security Holders

There were no matters submitted to a vote of the
security holders during fourth quarter of 2001.

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PART II




Item 5.Market for Registrants
Common Equity and Related Stockholder Matters

Price Range of Common Stock

Our common stock has been quoted on the Nasdaq
Stock Markets National Market under the symbol
AGNT since our initial public offering on
July 19, 2000. Prior to this time, there was no public
market for our stock. The following table sets forth the high
and low sales prices per share of our common stock as reported
on the Nasdaq Stock Markets National Market for the
periods indicated.

|               |  |             |       |             |  |      |      |     |  |   |       |  |  |   |       | 
|-------------- |  | ----------- | ----- | ----------- |  | ---- | ---- | --- |  | - | ----- |  |  | - | ----- | 
|               |  |             |       |            
|               |  | 2001        |       | 2000       
|               |  | Sales Price |       | Sales Price
|               |  |             |       |            
|               |  | High        |       | Low         |  | High |      | Low
|               |  |             |       |             |  |      |      |    
|First Quarter  |  | $           | 10.81 |             |  | $    | 5.13 |     |  |   | NA    |  |  |   | NA    | 
|Second Quarter |  |             | 7.38  |             |  |      | 4.20 |     |  |   | NA    |  |  |   | NA    | 
|Third Quarter  |  |             | 5.85  |             |  |      | 2.65 |     |  | $ | 27.69 |  |  | $ | 10.00 | 
|Fourth Quarter |  |             | 4.49  |             |  |      | 2.35 |     |  |   | 22.00 |  |  |   | 7.00  | 

Dividend Policy

We have not paid any cash dividends to date and
do not anticipate paying any cash dividends in the foreseeable
future. We currently expect to retain future earnings, if any,
for use in the operation and expansion of our business.

Holders of Common Stock

As of February 25, 2002, there were 183
holders of record of our common stock.

Issuance of Unregistered Common
Stock

On March 1, 2001, we issued 666,667 shares
of unregistered common stock in connection with the acquisition
of ATSI.

On February 20, 2002, we issued 572,152
shares of unregistered common stock in connection with the
acquisition of Jones Group.

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Item 6.  Selected Financial
Data

The following selected financial data has been
derived from our audited financial statements and the following
table should be read in conjunction with the consolidated
financial statements and the notes to such statements and
Managements Discussion and Analysis of Financial
Condition and Results of Operations included elsewhere in
this Annual Report on Form 10-K. Historical results are not
necessarily indicative of the results to be expected in the
future.

The pro forma net loss per share and shares used
in computing pro forma net loss per share are calculated as if
all of our convertible preferred stock was converted into shares
of our common stock on the date of issuance. Each outstanding
share of preferred stock was converted to 0.88 shares of common
stock upon completion of our initial public offering on
July 19, 2000.

|                                                                                                  |                                                           |                                      |         |        |        |      |        |        |        |      |        |       |        |   |        |       |        |   |        |       |        | 
|------------------------------------------------------------------------------------------------- | --------------------------------------------------------- | ------------------------------------ | ------- | ------ | ------ | ---- | ------ | ------ | ------ | ---- | ------ | ----- | ------ | - | ------ | ----- | ------ | - | ------ | ----- | ------ | 
|                                                                                                  |                                                           |                                     
|                                                                                                  |                                                           | Year Ended December 31,             
|                                                                                                  |                                                           |                                     
|                                                                                                  |                                                           | 2001                                 |         | 2000   |        | 1999 |        | 1998   |        | 1997
|                                                                                                  |                                                           |                                      |         |        |        |      |        |        |        |     
|                                                                                                  |                                                           |                                     
|                                                                                                  |                                                           | (in thousands except per share data)
|Statements of Operations Data:                                                                    |                                                           |                                      |         |        |        |      |        |        |        |      |        |       |        |   |        |       |        |   |        |      
|Net sales                                                                                         |                                                           | $                                    | 17,063  |        |        | $    | 17,449 |        |        | $    | 10,558 |       |        | $ | 12,076 |       |        | $ | 5,826  |      
|Costs and expenses:                                                                               |                                                           |                                      |         |        |        |      |        |        |        |      |        |       |        |   |        |       |        |   |        |      
|                                                                                                  | Cost of sales                                             |                                      |         | 9,431  |        |      |        | 7,994  |        |      |        | 4,689 |        |   |        | 5,608 |        |   |        | 3,155 |       
|                                                                                                  | Research and development                                  |                                      |         | 7,089  |        |      |        | 5,057  |        |      |        | 4,180 |        |   |        | 4,922 |        |   |        | 4,292 |       
|                                                                                                  | Selling, general and administrative                       |                                      |         | 16,686 |        |      |        | 13,819 |        |      |        | 9,125 |        |   |        | 7,108 |        |   |        | 4,795 |       
|                                                                                                  | Amortization of goodwill and purchased intangible
	assets |                                      |         | 1,157  |        |      |        |       |        |      |        |      |        |   |        |      |        |   |        |      |       
|                                                                                                  | Acquired in-process research and development              |                                      |         | 270    |        |      |        |       |        |      |        |      |        |   |        |      |        |   |        |      |       
|                                                                                                  | Restructuring charges                                     |                                      |         | 384    |        |      |        |       |        |      |        |      |        |   |        |      |        |   |        |      |       
|                                                                                                  | Impairment charge                                         |                                      |         | 5,520  |        |      |        |       |        |      |        |      |        |   |        |      |        |   |        |      |       
|                                                                                                  |                                                           |                                      |         |        |        |      |        |        |        |      |        |       |        |   |        |       |        |   |        |      
|                                                                                                  |                                                           | Total costs and expenses             |         |        | 40,537 |      |        |        | 26,870 |      |        |       | 17,994 |   |        |       | 17,638 |   |        |       | 12,242 | 
|                                                                                                  |                                                           |                                      |         |        |        |      |        |        |        |      |        |       |        |   |        |       |        |   |        |      
|Loss from operations                                                                              |                                                           |                                      | (23,474 | )      |        |      | (9,421 | )      |        |      | (7,436 | )     |        |   | (5,562 | )     |        |   | (6,416 | )    
|Interest and other income (expenses), net                                                         |                                                           |                                      | 2,679   |        |        |      | 1,900  |        |        |      | (167   | )     |        |   | (94    | )     |        |   | 216    |      
|                                                                                                  |                                                           |                                      |         |        |        |      |        |        |        |      |        |       |        |   |        |       |        |   |        |      
|Net loss                                                                                          |                                                           | $                                    | (20,795 | )      |        | $    | (7,521 | )      |        | $    | (7,603 | )     |        | $ | (5,656 | )     |        | $ | (6,200 | )    
|                                                                                                  |                                                           |                                      |         |        |        |      |        |        |        |      |        |       |        |   |        |       |        |   |        |      
|Net loss per common share, basic & diluted                                                        |                                                           | $                                    | (1.09   | )      |        | $    | (0.79  | )      |        | $    | (3.55  | )     |        | $ | (3.31  | )     |        | $ | (4.52  | )    
|                                                                                                  |                                                           |                                      |         |        |        |      |        |        |        |      |        |       |        |   |        |       |        |   |        |      
|Weighted-average shares used in computing net
	loss per common share, basic and diluted           |                                                           |                                      | 19,048  |        |        |      | 9,538  |        |        |      | 2,142  |       |        |   | 1,710  |       |        |   | 1,372  |      
|Pro forma net loss per common share, basic and
	diluted                                           |                                                           |                                      |         |        |        | $    | (0.50  | )      |        | $    | (0.68  | )     |        |   |        |       |        |   |        |      
|                                                                                                  |                                                           |                                      |         |        |        |      |        |        |        |      |        |       |        |   |        |       |        |   |        |      
|Weighted-average shares used in computing pro
	forma net loss per common share, basic and diluted |                                                           |                                      |         |        |        |      | 15,009 |        |        |      | 11,263 |       |        |   |        |       |        |   |        |      

|                                                  |  |                         |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|------------------------------------------------- |  | ----------------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                                  |  |                        
|                                                  |  | Year Ended December 31,
|                                                  |  |                        
|                                                  |  | 2001                    |         | 2000 |  | 1999 |         | 1998 |  | 1997
|                                                  |  |                         |         |      |  |      |         |      |  |     
|                                                  |  |                        
|                                                  |  | (in thousands)         
|Balance Sheets Data:                              |  |                         |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Cash, cash equivalents and short-term investments |  | $                       | 57,632  |      |  | $    | 73,372  |      |  | $    | 11,073  |   |  | $ | 2,261   |   |  | $ | 7,664   |  
|Working capital                                   |  |                         | 58,292  |      |  |      | 76,131  |      |  |      | 9,061   |   |  |   | 3,115   |   |  |   | 6,559   |  
|Total assets                                      |  |                         | 72,171  |      |  |      | 83,032  |      |  |      | 19,080  |   |  |   | 9,363   |   |  |   | 11,948  |  
|Long-term obligations, less current portion       |  |                         |        |      |  |      | 180     |      |  |      | 1,859   |   |  |   | 4,147   |   |  |   | 1,844   |  
|Accumulated deficit                               |  |                         | (55,234 | )    |  |      | (34,439 | )    |  |      | (26,918 | ) |  |   | (19,315 | ) |  |   | (13,659 | )
|Total stockholders equity                        |  |                         | 63,764  |      |  |      | 77,720  |      |  |      | 9,048   |   |  |   | 865     |   |  |   | 6,364   |  

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Item 7. Managements Discussion
and Analysis of Financial Condition and Results of
Operations

Since our inception, we have incurred significant
losses and, as of December 31, 2001, we had an accumulated
deficit of $55.2 million. We anticipate incurring
additional losses, which may increase, for the foreseeable
future.

Overview

We derive revenues primarily from the sale of our
instrument products. We commenced commercial shipment of our
first generation instrument, the Nautilus, in 1996, the Quest
product line in 1997, the Trident product line in 1998 and the
Surveyor and the Endeavor in 2000. Revenue from sales of our
instrument products is recognized when delivery and installation
of the product is complete. We also derive revenues from the
sale of reagents and other instrument related consumables, as
well as revenues derived from products and integration services
in connection with the acquisition of ATSI completed on
March 1, 2001. Our expenses have consisted primarily of
costs incurred in research and development, manufacturing and
general and administrative costs associated with our operations,
and the expansion of our sales and marketing organization. Our
research and development expenses may increase in the future as
we continue to develop our products. Our selling and marketing
expenses may increase as we continue to expand the geographic
coverage of our direct sales and support organization.

Recent Developments

Acquisition
of Jones Group

On February 20, 2002, we completed the
acquisition of Jones Group, a privately held chemistry
consumables and instrumentation company headquartered in
Cardiff, Wales, UK pursuant to a Share Purchase Agreement, dated
February 11, 2002. The Jones Group became a wholly owned
subsidiary of Argonaut and will continue to operate out of its
current Cardiff, Wales, U.K. locations. Jones Group has
approximately 118 employees worldwide with the majority
located in the United Kingdom. It operates two manufacturing
plants totaling approximately 50,000 square feet.

The Jones Group is a leading manufacturer and
distributor of high quality chromatography and purification
accessories, consumables and instrumentation. Consumable items
include leading brand sorbents, solid phase extraction (SPE)
columns and 96-well plates, flash chromatography and High
Performance Liquid Chromatography (HPLC) columns. It
manufactures purification and other chemistry development
instruments for the drug discovery market.

In the purchase transaction, the stockholders of
Jones Chromatography LTD (JCL) exchanged all of their respective
shares of JCL stock for (i) cash in an aggregate
amount of £3,825,000 ($5.4 million), (ii) 572,152
shares of unregistered Company Common Stock, and
(iii) notes payable in the aggregate principal amount of
£7,650,000 ($10.9 million). The notes payable, which
are redeemable for cash over the two-year period following the
closing date, are guaranteed by Barclays Bank PLC. In addition,
certain employees of Jones Group that remain as employees after
the transaction will receive stock options to purchase an
aggregate 349,800 shares of the Companys Common Stock.

All shares of Company Common Stock issued to JCL
stockholders in the transaction were issued in reliance on
exemptions from registration under the Securities Act of 1933,
as amended (the Securities Act). As a result, all
such shares of Company Common Stock are subject to restrictions
on transfer under the applicable provisions of the Securities
Act. Under the terms of the Registration Rights Agreement dated
February 20, 2002, the Company has granted the JCL
stockholders certain rights to register under the Securities Act
the shares of Company Common Stock received in the transaction.

Under the terms of the Share Purchase Agreement,
notes payable in the aggregate principal amount of
£2,550,000 ($3.6 million) will be held in escrow until
the second anniversary of the closing date, and may be used to
satisfy certain indemnification obligations of the principal JCL
stockholders.

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Acquisition of Camile Products
LLC

On March 1, 2001, we completed the
acquisition of Camile Products, LLC, pursuant to an Agreement
and Plan of Reorganization, dated January 31, 2001. Camile
became a wholly owned subsidiary of Argonaut, and operates as
Argonaut Technologies Systems, Inc. (ATSI) and continues to
operate out of its current Indianapolis, Indiana location.

ATSI markets software that allows pharmaceutical
and chemical companies to automate and precisely control
chemical reactions. ATSI specializes in automating research and
pilot-scale reactors with personal computer based software
solutions. ATSIs graphical user interface for the software
increases efficiencies allowing chemists more time to focus on
scientific discoveries.

We acquired ATSI in a purchase accounting
transaction for $4 million in cash and 666,667 shares of
common stock. A portion of the cash and common stock will be
held in escrow pursuant to the terms of the Agreement and Plan
of Reorganization.

Reduction in Force

In the fourth quarter of fiscal 2001, we
announced a restructuring program to downsize our organizational
structure in order to reduce operating expenses and improve
workforce processes and efficiencies. As a result, we recorded a
charge of $384,000, which includes termination benefits and
related expenses of $362,000 related to a reduction of our
workforce by 23 employees and expenses of $22,000 for
abandonment of excess equipment.

Impairment of Goodwill and Other
Purchased Intangible Assets

Downturns in the pharmaceutical, biotechnology
and chemical industries have negatively impacted the forecasted
revenues and expected cash flows from ATSI. The comparison of
the undiscounted expected future cash flows to the carrying
amount of the related purchased intangible assets resulted in an
impairment of the assets acquired, and a write-down of these
assets of approximately $5.5 million during our fourth
quarter of fiscal 2001, in accordance with our accounting
policies.

Critical Accounting Policies

We consider certain accounting policies related
to revenue recognition, allowance for doubtful accounts,
impairment of investments, inventory adjustments, warranty
liabilities, restructuring charge, purchase accounting,
impairment of long-lived assets and income tax to be critical
policies due to the estimation processes involved in each.

Use of Estimates

The preparation of consolidated financial
statements in conformity with accounting principles generally
accepted in the United States requires that we make estimates
and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results
could differ from those estimates.

Revenue Recognition

For each arrangement, we determine whether
persuasive evidence of an arrangement exists, delivery has
occurred or services have been rendered, collectibility is
reasonably assured and fees are fixed and determinable. If any
of these criteria are not met, revenue recognition is deferred
until all of the criteria are met.

Product
Revenue

Revenue related to product sales with no future
obligation is recognized upon shipment when the recognition
criteria have been met. For those products where we have
obligations to provide installation services, revenue is
recognized upon installation when the recognition criteria have
been met. Sales that require customer acceptance are not
recognized as revenue until the requirements have been met.

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Revenue
Arrangements With Significant Implementation Services

In certain circumstances, we enter into revenue
arrangements whereby we sell to our customer products with
significant implementation services. We recognize revenue for
these arrangements using the percentage-of-completion method of
accounting unless we are unable to make reasonable estimates
under that method, in which case revenue is recognized on a
completed contract basis. Losses on fixed price contracts are
recognized in the period in which the loss becomes known.

Service
Revenue

Maintenance contract revenue is recognized
ratably over the contractual period; trainings and other
services revenue is recognized as the services are rendered.

Allowance for Doubtful
Accounts

We maintain an allowance for doubtful accounts
for estimated losses resulting from the inability of our
customers to make required payments, which is included in bad
debt expense. We determine the adequacy of this allowance by
regularly reviewing the composition of our accounts receivable
aging and evaluating individual customer receivables,
considering our customers financial condition, credit
history and current economic conditions. If the financial
condition of our customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional
allowances may be required.

Investments

Investments are classified as available for sale
and recorded at fair value, and unrealized investment gains and
losses are reflected in stockholders equity. Investment
income is recorded when earned, and capital gains and losses are
recognized when investments are sold. Investments are reviewed
periodically to determine if they have suffered an impairment of
value that is considered other than temporary. If investments
are determined to be impaired, a capital loss is recognized at
the date of determination.

Testing for impairment of investments also
requires significant management judgment. The identification of
potentially impaired investments, the determination of their
fair value and the assessment of whether any decline in value is
other than temporary are the key judgment elements. The
discovery of new information and the passage of time can
significantly change these judgments. Revisions of impairment
judgments are made when new information becomes known, and any
resulting impairment adjustments are made at that time. The
current economic environment and recent volatility of securities
markets increase the difficulty of determining fair value and
assessing investment impairment. The same influences tend to
increase the risk of potentially impaired assets.

Inventories

Inventories are stated at the lower of cost (on a
first-in, first-out cost method) or market value. We record
adjustments to the value of inventory based upon the forecasted
plans to sell our inventories. The physical condition (e.g., age
and quality) of the inventories is also considered in
establishing its valuation. These adjustments are estimates,
which could vary significantly, either favorably or unfavorably,
from actual requirements if future economic conditions, customer
inventory levels or competitive conditions differ from our
expectations.

Warranties

We provide for the estimated cost of product
warranties at the time revenue is recognized. While the Company
engages in extensive product quality programs and processes,
including actively monitoring and evaluating the quality of its
component suppliers, our warranty obligation is affected by
product failure rates, material usage and service delivery costs
incurred in correcting a product failure. Should actual product
failure rates, material usage or service delivery costs differ
from our estimates, revisions to the estimated warranty
liability would be required.

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Restructuring

During fiscal year 2001, we recorded significant
reserves in connection with our restructuring program. These
reserves include estimates pertaining to employee separation
costs and related abandonment of excess equipment. Although we
do not anticipate significant changes, the actual costs may
differ from these estimates.

Purchase Accounting

We accounted for the acquisition of ATSI under
the purchase method of accounting and accordingly, the acquired
assets and liabilities assumed are recorded at their respective
fair values. The recorded values of assets and liabilities are
based on third-party estimates and valuations. The remaining
values are based on our judgments and estimates, and
accordingly, the companys financial position or results of
operations may be affected by changes in estimates and judgments.

Impairment of Long-Lived
Assets

In accordance with the provisions of SFAS
No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of
(SFAS 121), we review long-lived assets,
including goodwill, for impairment whenever events or changes in
business circumstances indicate that the carrying amount of the
assets may not be fully recoverable, such as a significant
industry downturn, significant decline in the market value of
the Company, or significant reductions in projected future cash
flows. Under SFAS 121, an impairment loss would be
recognized when estimated undiscounted future cash flows
expected to result from the use of the asset and its eventual
disposition is less than its carrying amount. Impairment, if
any, is assessed using discounted cash flows.

Income Tax

We recognize deferred tax assets and liabilities
based on the differences between the financial statement
carrying amounts and the tax bases of assets and liabilities. We
regularly review our deferred tax assets for recoverability and
establish a valuation allowance based upon historical losses,
projected future taxable income and the expected timing of the
reversals of existing temporary differences. As a result of this
review, we have established a full valuation allowance against
our deferred tax assets.

Stock Compensation

Deferred stock compensation is the difference
between the exercise price of the options and the fair value of
the common stock at the date of grant. The fair value was
determined based on the business factors underlying the value of
our common stock on the date of grant viewed in light of our
initial public offering in July 2000 and the anticipated initial
public offering price per share. The deferred stock compensation
was recorded as a component of stockholders equity and is
being amortized over the vesting periods of the options,
generally four years, using the graded vesting method. We
recorded deferred stock compensation of approximately
$2.8 million in the year ended December 31, 2000 and
approximately $3.8 million in the year ended
December 31, 1999 in connection with the grant of stock
options to employees. We have recorded amortization of deferred
stock compensation of approximately $1.6 million,
approximately $2.9 million, and approximately $653,000 in
the years ended December 31, 2001, 2000 and 1999,
respectively. As of December 31, 2001, we had a total of
approximately $1.0 million to be amortized over the
remaining vesting period of the options.

We also recorded stock compensation of $137,000,
$617,000 and $12,000 for the years ended December 31, 2001,
2000 and 1999, respectively, in connection with options granted
to consultants. These options are periodically remeasured as
they vest, in accordance with Emerging Issues Task Force
No. 96-18.

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In 2000, we granted performance-based options to
certain of our employees and recorded a stock compensation
expense of $86,000 in 2000 (none in 2001) on the date the
performance criteria were met and the options were vested. At
December 31, 2001, the Company has 26,410 options subject
to performance criteria. We will record additional stock
compensation expense on the remaining unvested options when and
if they vest.

COMPARATIVE RESULTS OF OPERATIONS

Years Ended December 31, 2001 and
2000

Net Sales

Net sales in 2001 were $17.1 million
compared to $17.4 million in 2000. The decrease was
substantially attributable to reduced unit volume sales of
instrument products as a result of the general economic slowdown
and more careful scrutiny of capital expenditures by our
customers. A substantially offsetting factor was the additional
net sales of approximately $2.9 million that was generated
from products and services in connection with our acquisition of
ATSI on March 1, 2001.

Cost of Sales

Cost of sales increased to $9.4 million in
2001 from $8.0 million in 2000. This increase was primarily
due to retrofit costs associated with the more recently
introduced Surveyor and Endeavor products and the additional
costs typically associated with early production units. In
addition, gross margin performance attributable to products and
services in connection with ATSI are historically lower overall.

Research and Development
Expenses

Research and development (R&D) expenses
increased to $7.1 million in 2001 from $5.1 million in
2000. Approximately $1.0 million of this increase is
attributable to additional R&D personnel, facility expenses
and other related spending in connection with ATSI. We incurred
additional spending for outside professional services related to
process improvement initiatives targeted at redesigning our
product development processes. As a partial offset to these
expenses, stock-based compensation expense was approximately
$588,000 less in 2001 compared to 2000.

Selling, General and
Administrative Expenses

Selling, general and administrative expenses
increased to $16.7 million in 2001 from $13.8 million
in 2000. Primary factors contributing to this increase were
additional expenses attributable to the addition of ATSI related
headcount and related expenses aggregating approximately
$2.0 million, the first full year of additional expenses
operating as a public company, and facility related relocation
expenses as referred to above. As a partial offset to these
increased expenses, stock-based compensation expense was
approximately $1.2 million less in 2001 compared to 2000.

Impairment Charge, Amortization of
Goodwill and Other Purchased Intangibles

Amortization of goodwill and other purchased
intangible assets was $1.2 million for fiscal 2001
representing the amortization of intangible assets recorded in
connection with our acquisition of ATSI on March 1, 2001.
Goodwill and other purchased intangible assets were
preliminarily amortized based on estimated useful lives of
10 years. At December 31, 2001, the purchase price
allocation was finalized, resulting in modifications to the
estimated useful lives of the individual intangible assets.
Goodwill is amortized over 10 years and other purchased
intangible assets are amortized over 3 to 10 years.

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In accordance with the provisions of SFAS
No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of
(SFAS 121), we review long-lived assets,
including goodwill, for impairment whenever events or changes in
business circumstances indicate that the carrying amount of the
assets may not be fully recoverable, such as a significant
industry downturn, significant decline in the market value of
the Company, or significant reductions in projected future cash
flows. Under SFAS 121, an impairment loss would be
recognized when estimated undiscounted future cash flows
expected to result from the use of the asset and its eventual
disposition is less than its carrying amount. Impairment, if
any, is assessed using discounted cash flows.

Downturns in the pharmaceutical, biotechnology
and chemical industries have negatively impacted the forecasted
revenues and expected cash flows from ATSI. The comparison of
the undiscounted expected future cash flows to the carrying
amount of the related purchased intangible assets resulted in an
impairment of the assets acquired, and a write-down of these
assets of approximately $5.5 million during our fourth
quarter of fiscal 2001, in accordance with our policy.

Acquired
in-process research and development expense

During fiscal 2001, we recorded $270,000 of
acquired in-process research and development (IPR&D)
resulting from the acquisition of ATSI. This amount was expensed
on the acquisition date because the acquired technology had not
yet reached technological feasibility and had no future
alternative uses. There can be no assurance that acquisitions of
businesses, products or technologies by us in the future will
not result in substantial charges for IPR&D that may cause
fluctuations in our quarterly or annual operating results.
Developed technology and IPR&D were identified and valued
through extensive interviews, analysis of data provided by ATSI
concerning developmental products, their stage of development,
the time and resources needed to complete them, if applicable,
their expected income generating ability, target markets and
associated risks. The income approach, which includes an
analysis of the markets, cash flows and risks associated with
achieving such cash flows, was the primary technique utilized in
valuing the developed technology and IPR&D.

Where developmental projects had reached
technological feasibility, they were classified as developed
technology, and the value assigned to developed technology was
capitalized. Where the developmental projects had not reached
technological feasibility and had no future alternative uses,
they were classified as IPR&D and charged to expense upon
closing of the acquisition. The nature of the efforts required
to develop the purchased IPR&D into commercially viable
products principally relate to the completion of all planning,
designing, prototyping, verification and testing activities that
are necessary to establish that the products can be produced to
meet their design specifications, including functions, features
and technical performance requirements.

In valuing the IPR&D, we considered, among
other factors, the importance of each project to the overall
development plan, projected incremental cash flows from the
projects when completed and any associated risks. The projected
incremental cash flows were discounted back to their present
value using a discount rate of 26%. The discount rate was
determined after consideration of our weighted average cost of
capital and the weighted average return on assets. Associated
risks include the inherent difficulties and uncertainties in
completing each project and thereby achieving technological
feasibility, anticipated levels of market acceptance and
penetration, market growth rates and risks related to the impact
of potential changes in future target markets.

Restructuring
Charge

In the fourth quarter of fiscal 2001, we
announced a restructuring program to downsize our organizational
structure in order to reduce operating expenses and improve
workforce processes and efficiencies. As a result, we recorded a
charge of $384,000, which includes termination benefits and
related expenses of $362,000 related to a reduction of our
workforce by 23 employees and expenses of $22,000 for
abandonment of excess equipment. Remaining cash expenditures
relating to workforce reduction will be paid in the first two
quarters

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of fiscal 2002. The restructuring program is
expected to yield cash savings of approximately
$3.4 million annually, beginning in fiscal 2002. These
savings largely relate to reduced employee-related costs and are
expected to be realized primarily in operating expenses.


Interest
and Other Income (Expense), net

Interest and other income of $2.9 million in
2001 compared to $2.4 million in 2000. This increase
reflects the net effect of higher average balances of invested
cash, cash equivalents, and short term investments in 2001 as a
result of the completion of our initial public offering in July
2000, substantially offset by reduced interest rate yields
consistent with the overall interest rate decline of high
quality short term financial instruments. Interest and other
expense was $235,000 in 2001 compared to $503,000 in 2000 as a
result of the continuing reduction of the Companys debt
obligations.

Income
Taxes

As of December 31, 2001, we had federal net
operating loss and research credit carryforwards of
approximately $36.0 million and $900,000, respectively,
which expire on various dates between 2010 and 2021.

Utilization of our net operating loss may be
subject to a substantial annual limitation due to the ownership
change limitations provided by the Internal Revenue Code and
similar state provisions. Such an annual limitation could result
in the expiration of the net operating loss before utilization.

Years Ended December 31, 2000 and
1999

Net
Sales

Net sales in 2000 were $17.4 million
compared to $10.6 million in 1999. The increase was
substantially attributable to the introduction of three new
instrument products in 2000 along with higher sales in other
instruments and chemistry products.

Cost
of Sales

Cost of sales increased to $8.0 million in
2000 from $4.7 million in 1999. This increase was primarily
due to higher sales volume. Gross margins as a percentage of net
sales in 2000 declined slightly compared to 1999. This is
attributable to the recently launched Surveyor and Endeavor
products with additional costs typically associated with early
production units offset by improved margins in the chemistry
products.

Research
and Development Expenses

Research and development expenses increased to
$5.1 million in 2000 from $4.2 million in 1999. These
expenses include salaries and related costs of research and
development personnel as well as the costs of parts and supplies
associated with research and development projects. Personnel
levels and related expenses remained relatively constant during
both periods. The increase is primarily attributable to
stock-based compensation charges.

Selling,
General and Administrative Expenses

Selling, general and administrative expenses
increased to $13.8 million in 2000 from $9.1 million
in 1999. These expenses consist primarily of salaries and
related costs for executive, sales and marketing, finance and
other administrative personnel and the costs of facilities. The
increase was attributable to further expansion of our direct
sales force in the United States and Europe and the recruitment
and placement of a general manager for our European subsidiary
during 2000. The increase also includes $2.3 million of
stock-based compensation charges incurred in 2000 versus
$457,000 in 1999.

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Interest
and Other Income (Expense)

Net interest and other income was
$1.9 million compared to net interest and other expense of
$167,000 in 1999. The change was primarily due to interest
income generated from the investments of proceeds of our initial
public offering in July 2000 and a reduction of interest expense
from the repayment of our outstanding debt balances during the
year using proceeds from our initial public offering.

Income
Taxes

As of December 31, 2000, we had federal net
operating loss and research credit carryforwards of
approximately $26.0 million and $700,000, respectively,
which expire on various dates between 2010 and 2020.

Liquidity and Capital Resources

We have funded our operations principally though
sales of equity securities. On July 19, 2000 we completed
our initial public offering raising net proceeds of
$72.5 million. We used $4.7 million of these proceeds
to repay substantially all of our outstanding debt. The
remaining funds have been invested in short-term interest
bearing securities and will be utilized to fund operations and
continued growth. At December 31, 2001, we had total cash,
cash equivalents and short-term investments of
$57.6 million.

Net cash used in operating activities was
$9.5 million in 2001 and $5.0 million in 2000. Cash
used in operating activities during fiscal years 2001 and 2000
was attributable primarily to net losses, after adjustments for
non-cash items, and working capital requirements.

Net cash used in investing activities was
$11.3 million in 2001 and $28.9 million in 2000. For
2001, our investing activities consisted principally of the cash
component of our purchase of ATSI, capital expenditures and
purchases and sales of our short-term investments. For 2000, our
investing activities consisted principally of capital
expenditures and purchases and sales of our short term
investments.

Net cash provided by (used in) financing
activities was ($0.4 million) in 2001 and
$68.1 million in 2000. Our financing activities consisted
principally of proceeds from the sale of our common stock in an
initial public offering in 2000, and repayment of debt
obligations in 2001. We used part of the proceeds from our
initial public offering to repay existing loans in 2000.

We expect to have negative cash flow from
operations through at least through 2002. We expect to incur
increasing development expenses, as well as expenses for
additional personnel for production and commercialization
efforts, and we may never generate positive cash flows. Our
future capital requirements depend on a number of factors,
including market acceptance of our products, the resources we
devote to developing and supporting our products, continued
progress of our research and development of potential products,
the need to acquire licenses to new technology and the
availability of other financing. We believe that our current
cash balances, together with the remaining net proceeds of our
initial public offering and revenue to be derived from product
sales and research and development collaborations will be
sufficient to fund our operations at least through the next
12 months. To the extent our capital resources are
insufficient to meet future capital requirements, we will need
to raise additional capital or incur indebtedness to fund our
operations. There can be no assurance that additional debt or
equity financing will be available on acceptable terms, if at
all. If adequate funds are not available, we may be required to
delay, reduce the scope of, or eliminate, our operations or
obtain funds through arrangements with collaborative partners or
others that may require us to relinquish rights to certain
technologies or products that we might otherwise seek to retain.

The acquisition of Jones Group was completed
February 20, 2002 for purchase consideration of
approximately 572,000 shares of unregistered Argonaut common
stock, £3,825,000 ($5.4 million) cash due at closing,
and notes payable aggregating £7,650,000
($10.9 million) payable over two years, plus acquisition
related legal, accounting, due diligence and other transaction
expenses. We will utilize the purchase method of accounting for
this transaction and we are currently evaluating the allocation
of the total purchase price, including amounts to be allocated
to goodwill and IPR&D. We expect Jones Group to provide
approximately $10 million to our 2002 net sales performance
and to be accretive to pre-tax operating results.

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The following summarizes our contractual cash
obligations at December 31, 2001, adjusted to include the
purchase price relating to the acquisition of Jones Group
completed on February 20, 2002, and the effect such
obligations are expected to have on our liquidity and cash flows
in future periods (in thousands):

|                                                  |  |                         |        |           |  |        |       |        |  |   |        |  |  |   |     | 
|------------------------------------------------- |  | ----------------------- | ------ | --------- |  | ------ | ----- | ------ |  | - | ------ |  |  | - | --- | 
|                                                  |  |                        
|                                                  |  | Payments due by period:
|                                                  |  |                        
|                                                  |  |                         |        | Less than |  | 1 to 3 |       | 4 to 5
|Contractual Obligations                           |  | Total                   |        | 1 year    |  | years  |       | years 
|                                                  |  |                         |        |           |  |        |       |       
|Cash due at closing of acquisition of Jones Group |  | $                       | 5,432  |           |  | $      | 5,432 |        |  | $ |       |  |  | $ |    | 
|Notes payable (Jones Group)                       |  |                         | 10,863 |           |  |        |      |        |  |   | 10,863 |  |  |   |    | 
|Capital lease obligations                         |  |                         | 200    |           |  |        | 200   |        |  |   |       |  |  |   |    | 
|Operating lease obligations                       |  |                         | 2,451  |           |  |        | 940   |        |  |   | 982    |  |  |   | 529 | 
|Minimum royalties                                 |  |                         | 1,700  |           |  |        | 600   |        |  |   | 1,100  |  |  |   |    | 
|                                                  |  |                         |        |           |  |        |       |        |  |   |        |  |  |   |     | 
|Total contractual cash obligations                |  | $                       | 20,646 |           |  | $      | 7,172 |        |  | $ | 12,945 |  |  | $ | 529 | 
|                                                  |  |                         |        |           |  |        |       |        |  |   |        |  |  |   |     | 

FACTORS THAT MAY AFFECT OUR FUTURE
RESULTS

We have a history of operating losses and we
may never achieve or sustain profitability and may be required
to raise additional funds if losses continue.

We have incurred operating losses and negative
cash flows from operations since our inception. As of
December 31, 2001, we had an accumulated deficit of
$55.2 million and we recorded net losses of
$20.8 million for the twelve month period ended
December 31, 2001. We expect to continue to incur operating
and net losses for the foreseeable future and we may never
generate positive cash flows.

To the extent our capital resources are
insufficient to meet our future capital requirements, we will
have to raise additional funds to continue the development and
commercialization of our products. Funds may not be available on
favorable terms, if at all. To the extent that we raise
additional capital through the sale of equity, the issuance of
those securities will result in dilution to our stockholders.

If our products do not become widely used in
the life sciences and chemical industries, it is unlikely that
we will ever become profitable.

Pharmaceutical, biotechnology, life sciences and
chemical companies have historically performed chemistry
development using traditional laboratory methods. To date, our
products have not been widely adopted by these industries. The
commercial success of our products will depend upon the adoption
of these products as a method to develop chemical compounds for
the life sciences and other industries. In order to be
successful, our products must meet the performance and pricing
requirements for chemistry development within the life sciences
and other industries. Market acceptance will depend on many
factors, including our ability to:



| |   |                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Convince prospective customers that our products
	are a cost-effective alternative to traditional methods and
	other technologies that may be introduced for chemistry
	development.         
|
| |  | Convince prospective customers that our products
	provide the same or enhanced quality and accuracy as compared
	with traditional methods and other new technologies which may be
	developed.
|
| |  | Manufacture products in sufficient quantities
	with acceptable quality and at an acceptable cost.                                                                                            
|
| |  | Install and service sufficient quantities of our
	products.                                                                                                                                  

If we cannot achieve these objectives, our
products will not gain market acceptance.

We face risks associated with past and future
acquisitions.

Our success depends in part on our ability to
continually enhance and broaden our product offerings in
response to changing technologies, customer demands and
competitive pressures. To meet these challenges, we have
recently acquired complementary businesses and may choose to
acquire others in the future. We completed our acquisition of
ATSI in March 2001 and Jones Group in February 2002. We have
never integrated a business as financially significant as Jones
Group or an international based business. Our failure to
successfully integrate

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this business may materially affect our business
going forward. We do not know if we will be able to complete any
future acquisitions, or whether we will be able to successfully
integrate any acquired business, operate it profitably or retain
its key employees. Integrating any business, product or
technology we acquire could be expensive and time consuming, and
may disrupt our ongoing business and distract our management. If
we are unable to effectively integrate any acquired entities,
products or technologies, our business may suffer. In addition,
any amortization of goodwill or other assets or charges
resulting from the costs of acquisitions could negatively impact
our operating results. Our available cash and securities may be
used to buy or invest in companies or products, possibly
resulting in significant acquisition-related charges to earnings
and dilution to our stockholders. Due to volatile market
conditions, the value of long live assets maybe negatively
impacted, which may result in future, additional impairment
charges. Moreover, if we buy a company, we may have to incur or
assume that companys liabilities, including liabilities
that are unknown at the time of acquisition.


Our product development efforts may not
produce commercially viable products.

We continue to devote significant personnel and
financial resources to research and development activities to
develop new products. We may not be successful in developing new
products, and we may never realize any benefits from such
research and development activities, including both our current
research collaboration with Pfizer and our product development
consortium with Pfizer and ICI, which may not produce
commercially viable products. Our ability to increase our
revenues and achieve and sustain profitability is dependent upon
our ability to successfully develop new and commercially viable
products.

The capital spending policies of life sciences
and other chemical research companies have a significant effect
on the demand for our products.

We market our products to and receive our
revenues principally from pharmaceutical, biotechnology, life
sciences and other chemical research companies, and the capital
spending policies of these entities can have a significant
effect on the demand for our products. These policies are based
on a wide variety of factors, including the resources available
for purchasing research equipment, the spending priorities among
various types of research equipment and the policies regarding
capital expenditures. In particular, the volatility of the
public stock market for biotechnology and related companies has
at certain times significantly impacted their ability to raise
capital, which has directly affected their capital spending
budgets. In addition, continued consolidation within the
pharmaceutical industry will likely delay and may potentially
reduce capital spending by pharmaceutical companies involved in
such consolidations. Any decrease or delay in capital spending
by life sciences companies could cause our revenues to decline
and harm our profitability.

Our products have lengthy sales cycles, which
could cause our operating results to fluctuate significantly
from quarter to quarter.

Our ability to obtain customers for our products
depends in significant part upon the perception that our
products can help accelerate efforts in chemical development.
The sale of many of our products typically involves a
significant technical evaluation and commitment of capital by
customers. Accordingly, the sales cycles of many of our products
are lengthy and subject to a number of risks that are beyond our
control, including customers budgetary constraints and
internal acceptance reviews. Our revenues could fluctuate
significantly from quarter to quarter, due to this lengthy and
unpredictable sales cycle. A large portion of our expenses,
including expenses for facilities, equipment and personnel, are
relatively fixed. Accordingly, if our revenues decline or do not
grow as we anticipate, we might not be able to correspondingly
reduce our operating expenses. Our failure to achieve our
anticipated levels of revenues could significantly harm our
operating results for a particular fiscal period. Due to the
possibility of fluctuations in our operating results, we believe
that quarter-to-quarter comparisons of our operating results are
not always a good indication of our future performance.

In order to be successful, we must recruit,
retain and motivate key employees, and failure to do so could
seriously harm us.

In order to be successful, we must recruit,
retain and motivate executives and other key employees,
including those in managerial, technical, marketing and sales
positions. In particular, our product generation

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efforts depend on hiring and retaining qualified
technical personnel. Attracting and retaining qualified sales
representatives is also critical to our future. Experienced
management and technical, marketing and support personnel in the
information technology industry are in high demand and
competition for their talents is intense. This is particularly
the case in Silicon Valley, where our headquarters and certain
key research and development facilities are located. The loss of
key employees could have a significant impact on our operations.
We also must continue to motivate employees and keep them
focused on Argonauts strategies and goals, which may be
particularly difficult due to morale challenges posed by
workforce reductions and general uncertainty. John T. Supan, our
chief financial officer will resign his position at the earlier
of March 31, 2002 or the filing of this Annual Report on
Form 10-K. Lissa Goldenstein, our president and chief
executive officer, will serve as acting chief financial officer
during the transition until a successor is named. During the
transition, we expect to engage a consultant to provide guidance
and advice to Ms. Goldenstein and the company regarding our
financial operations and integration plans with Jones Group.
Changes in management may be disruptive to our business and may
result in the departure of existing employees, customers and/or
research collaborators. It may take significant time to locate,
retain and integrate qualified management personal.


Our direct world wide sales force and network
of distributors may not be sufficient to successfully address
the market for our products.

We sell a major portion of our products through
our own sales force. We may not be able to build an efficient
and effective sales and marketing force and continue to expand
our network of distributors. Our failure to build an efficient
and effective sales and marketing force could negatively impact
sales of our products, thus reducing our revenues and
profitability. In addition, we need to successfully and
efficiently integrate Jones Group sales force otherwise we may
not realize expected synergies.

We are exposed to general global economic and
market conditions.

Our business is subject to the effects of general
economic conditions in the United States, United Kingdom and
globally, and, in particular, market conditions in the life
science and chemical industries. In recent quarters, our
operating results have been adversely affected as a result of
unfavorable economic conditions and reduced capital spending in
the United States, Europe, and Asia. If the economic conditions
in the United States and globally do not improve, or if we
experience a worsening in the global economic slowdown, we may
continue to experience material adverse impacts on our business,
operating results, and financial condition.

Our business is subject to risks from
international operations.

We conduct business globally. Accordingly, our
future results could be materially adversely affected by a
variety of uncontrollable and changing factors including, among
others, foreign currency exchange rates; regulatory, political,
or economic conditions in a specific country or region; trade
protection measures and other regulatory requirements; and
natural disasters. Any or all of these factors could have a
material adverse impact on our future international business.

We are exposed to fluctuations in the exchange
rates of foreign currency.

As a global concern, we face exposure to adverse
movements in foreign currency exchange rates. With the Jones
Group acquisition, approximately 44% of our net sales are
exposed to foreign currency risk. These exposures may change
over time as business practices evolve and could have a material
adverse impact on our financial results. The use of the Euro as
a common currency for members of the European Union could impact
our foreign exchange exposure. We will monitor our exposure and
may hedge against this and any other emerging market currencies
as necessary.

We are exposed to the credit risk of some of
our customers.

Due to the current slowdown in the economy, the
credit risks relating to our customers have increased. Although
we have programs in place to monitor and mitigate the associated
risk, there can be no assurance that such programs will be
effective in reducing our credit risks. We have experienced
losses due to customers failing to meet their obligations.
Although these losses have not been significant, future losses,
if incurred, could harm our business and have a material adverse
effect on our operating results and financial conditions.

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If we lose our exclusive license to
proprietary technology incorporated into our products we may be
unable to continue selling those products.

We have developed some of our products based on
proprietary technology originally developed by third parties. We
currently have exclusive licenses to use such technology in our
products that are subject to termination in certain events. In
particular, our license to proprietary technology belonging to
Symyx, which is incorporated into our Endeavor product. Our
sales of this product constitute a significant portion of our
revenue. We estimate that sales of this product will constitute
approximately 10 to 15% of our revenues for 2002. This estimate
depends on a variety of factors, including increased demand, and
we cannot be certain that this estimate will be accurate. If
licensors terminate our licenses to any such technology, our
revenues will decline.

Because we outsource our product assembly, our
ability to produce and supply our products could be
impaired.

We outsource most of the assembly of our products
to vendors. Our reliance on our outside vendors exposes us to
risks including:



| |   |                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------
| |  | the possibility that one or more of our vendors
	could terminate their services at any time without notice;                  
|
| |  | reduced control over pricing, quality and timely
	delivery, due to the difficulties in switching to alternative
	vendors; and
|
| |  | the potential delays and expenses of seeking
	alternative sources of manufacturing services.                                 

Consequently, in the event that components from
our suppliers or work performed by our vendors are delayed or
interrupted for any reason, our ability to produce and deliver
our products would decline.

The life sciences industry is highly
competitive and subject to rapid technological change, and we
may not have the resources necessary to successfully
compete.

We compete with companies world wide that are
engaged in the development and production of similar products.
We face competition primarily from the following three sectors:



| |   |                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | companies marketing conventional products based
	on traditional chemistry methodologies;                                                                                       
|
| |  | pharmaceutical companies developing their own
	instruments; and                                                                                                                
|
| |  | companies marketing products based upon parallel
	synthesis and other innovative technologies, such as
	Mettler-Toledo AG and several smaller instrument and reagent
	companies

Many of our competitors have access to greater
financial, technical, research, marketing, sales, distribution,
service and other resources than we do. We face, and will
continue to face, intense competition from organizations serving
the life sciences industry that are developing or marketing
competing products and technologies. These organizations may
develop products or technologies that are superior to our
products or technologies in terms of performance, cost or both.
These organizations may offer price discounts or other
concessions as a competitive tactic that we may not be in a
position to match.

We may need to develop new applications for our
products to remain competitive. Our present or future products
could be rendered obsolete or uneconomical by technological
advances of one or more of our current or future competitors. In
addition, the introduction or announcement of new products by us
or by others could result in a delay of or decrease in sales of
existing products, as customers evaluate these new products. Our
future success will depend on our ability to compete effectively
against current technology as well as to respond effectively to
technological advances.

If we infringe on or misappropriate the
proprietary rights of others or we are unable to protect our own
intellectual property rights our revenues could be
harmed.

We may be sued for infringing on the intellectual
property rights of others. Intellectual property litigation is
costly, and, even if we prevail, the cost of such litigation
could affect our profitability. In addition, litigation is time
consuming and could divert management attention and resources
away from our business. If we do not prevail in any litigation,
in addition to any damages we might have to pay, we could be
required to stop the infringing activity

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or obtain a license. We may not be able to obtain
required licenses on acceptable terms, or at all. In addition,
some licenses may be nonexclusive, and therefore, our
competitors may have access to the technology licensed to us. If
we fail to obtain a required license or are unable to design
around a patent, we may be unable to sell some of our products,
which could harm our ability to compete and result in a decline
in our revenues.


Our success will depend on our ability to obtain
and enforce patents on our technology and to protect our trade
secrets. Any patents we own may not afford meaningful protection
for our technology and products. Others may challenge our
patents and, as a result, our patents could be narrowed,
invalidated or rendered unenforceable. In addition, our current
and future patent applications may not result in the issuance of
patents to us in the United States or foreign countries.
Moreover, competitors may develop products similar to ours that
are not covered by our patents.

We try to protect our unpatented trade secrets by
requiring our employees, consultants and advisors to execute
confidentiality agreements. However, we cannot guarantee that
these agreements will provide us with adequate protection
against improper use or disclosure of our trade secrets.
Further, others may independently develop substantially
equivalent proprietary information and techniques. If we are
unable to protect our proprietary information and techniques,
our ability to exclude certain competitors from the market will
be limited.

Risks Related to Our Common Stock

Our stock price has been highly volatile, and
your investment could suffer a further decline in
value.

The trading price of our common stock has been
highly volatile and ranged in 2001 from a per-share high of
$10.81 to a low of $2.35 and could continue to be subject to
wide fluctuations in price in response to various factors, many
of which are beyond our control, including;



| |   |                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------
| |  | actual or anticipated variations in quarterly
	operating results;                                               
|
| |  | failure to achieve, or changes in, financial
	estimates by securities analysts;                                 
|
| |  | announcements of new products or services or
	technological innovations by us or our competitors;               
|
| |  | conditions or trends in the pharmaceutical,
	biotechnology, life sciences and chemical industries;              
|
| |  | announcements by us of significant acquisitions,
	strategic partnerships, joint ventures or capital commitments;
|
| |  | additions or departures of key personnel;                                                                       
|
| |  | sales of our common stock; and                                                                                  
|
| |  | developments regarding our patents or other
	intellectual property or that of our competitors.                  

In addition, the stock market in general, and the
Nasdaq Stock Markets National Market and the market for
technology companies in particular, have experienced significant
price and volume fluctuations that have often been unrelated or
disproportionate to the operating performance of those
companies. Further, there has been particular volatility in the
market prices of securities of life science companies. These
broad market and industry factors may seriously harm the market
price of our common stock, regardless of our operating
performance. In the past, following periods of volatility in the
market price of a companys securities, securities class
action litigation has often been instituted. A securities class
action suit against us could result in substantial costs,
potential liabilities and the diversion of managements
attention and resources.

There may not be an active, liquid trading
market for our common stock.

There is no guarantee that an active trading
market for our Common Stock will be maintained on the NASDAQ
National Market. You may not be able to sell your shares quickly
or at the market price if trading in our stock is not active. If
we fail to comply with the continued listing requirements of the
NASDAQ National Market, including the minimum bid price per
share requirement, we may be delisted from trading on such
market, and thereafter trading in our common stock, if any,
would be conducted through the over-the-counter market or on the
Electronic Bulletin Board of the National Association of
Securities Dealers, Inc.

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Our principal stockholders, directors and
executive officers own approximately 54% of our common stock,
which may prevent new investors from influencing corporate
decisions.

Our principal stockholders who currently own over
5% of our common stock and our directors and executive officers
who beneficially own approximately 54% of our outstanding common
stock, will be able to exercise significant influence over all
matters requiring stockholder approval, including the election
of directors and the approval of significant corporate
transactions. This concentration of ownership may also delay or
prevent a change in control of us even if beneficial to our
other stockholders.

Sales of large numbers of shares of our common
stock could cause our stock price to decline.

The market price of our common stock could
decline as a result of sales of substantial amounts of our
common stock in the public market, or the perception that these
sales could occur. In addition, these factors could make it more
difficult for us to raise funds through future offerings of
common stock. All of the shares sold in our initial public
offering are now freely transferable without restriction or
further registration under the Securities Act, except for any
shares purchased by our affiliates, as defined in Rule 144
of the Securities Act. The remaining shares of common stock
outstanding are restricted securities as defined in
Rule 144. These shares may be sold in the future without
registration under the Securities Act, to the extent permitted
by Rule 144 or other exemptions under the Securities Act.

On March 1, 2001, we issued
666,667 shares of unregistered common stock in connection
with the acquisition of ATSI.

On February 5, 2002, we registered 2,628,618
shares of common stock that are reserved for issuance upon
exercise of options granted under our stock option and employee
stock purchase plans. These shares can be sold in the public
market upon issuance, subject to restrictions under the
securities laws applicable to resales by affiliates.

On February 20, 2002, we issued
572,152 shares of unregistered common stock in connection
with the acquisition of Jones Group.

Anti-takeover provisions in our charter and
bylaws and under Delaware law could make a third-party
acquisition of us difficult.

Pursuant to our charter, our board of directors
has the authority to issue up to 10,000,000 shares of preferred
stock and to determine the price, rights, preferences,
privileges and restrictions, including voting rights, of those
shares without any further vote of action by our stockholders.
The issuance of preferred stock could have the effect of making
it more difficult for a third party to acquire a majority of our
outstanding voting stock. Our certificate of incorporation and
bylaws contain other provisions that could make it more
difficult for a third party to acquire us, even if doing so
might be deemed beneficial by our stockholders. These provisions
could limit the price that investors might be willing to pay in
the future for shares of our common stock. We are also subject
to certain provisions of Delaware law that could delay, deter or
prevent a change in control of us.




Item 7A. Quantitative and Qualitative
Disclosures about Market Risk

INTEREST RATE RISK

Our exposure to interest rate risk is related
principally to our investment portfolio. Fixed rate investments
may have their fair market value adversely impacted from changes
in interest rates and floating rate investments may produce less
income than expected if interest rates fall. Due in part to
these factors, our future investment income may fall short of
expectations. Further, we may suffer losses in investment
principal if we are forced to sell securities that have declined
in market value due to changes in interest rates. We invest our
excess cash in debt instruments of the U.S. government and its
agencies, and in debt instruments of high

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quality corporate issuers. The principal notional
amount with an expected maturity in the following year, weighted
average interest rate, and average contractual maturity were as
follows ($ in millions):


|                                                                       |  |              |      |              |  |   |      |  
|---------------------------------------------------------------------- |  | ------------ | ---- | ------------ |  | - | ---- | -
|                                                                       |  | December 31, |      | December 31,
|                                                                       |  | 2001         |      | 2000        
|                                                                       |  |              |      |             
|Principal notional amount with an expected
	maturity in following year |  | $            | 54.2 |              |  | $ | 71.6 |  
|Weighted average interest rate                                         |  |              | 2.9  | %            |  |   | 6.4  | %
|Average contractual maturity of investments (days)                     |  |              | 130  |              |  |   | 52   |  

FOREIGN CURRENCY RISK

As we have operations and sales outside of the
United States, our financial results can be affected by changes
in foreign currency exchange rates or weak economic conditions
in the foreign markets in which we operate. To date, our foreign
operations and sales have not been significant to our results of
operations and financial condition; therefore our foreign
currency risk is minimal. With the Jones Group acquisition,
approximately 44% of our net sales are exposed to foreign
currency risk.

RECENT ACCOUNTING PRONOUNCEMENTS

Business
Combination

In June 2001, the Financial Accounting Standards
Board issued Statements of Financial Accounting Standards
No. 141, Business Combinations, and
No. 142, Goodwill and Other Intangible Assets.
Statement 141 requires that the purchase method of accounting be
used for all business combinations initiated after June 30,
2001. Statement 141 also includes guidance on the initial
recognition and measurement of goodwill and other intangible
assets arising from business combinations completed after
June 30, 2001. Statement 142 prohibits the
amortization of goodwill and intangible assets with indefinite
useful lives. Statement 142 requires that these assets be
reviewed for impairment at least annually. Intangible assets
with finite lives will continue to be amortized over their
estimated useful lives. Additionally, Statement 142 requires
that goodwill included in the carrying value of equity method
investments no longer be amortized.

We will apply Statement 142 beginning in the
first quarter of 2002. Application of the nonamortization
provisions of Statement 142 will significantly reduce
amortization expense, which was approximately $1,157,000 in
fiscal 2001. We will reclassify identifiable intangible assets
with indefinite lives, as defined by Statement 142, to
goodwill at the date of adoption. We will test goodwill for
impairment using the two-step process prescribed in
Statement 142. The first step is a screen for potential
impairment, while the second step measures the amount of the
impairment, if any. We expect to perform the first of the
required impairment tests of goodwill and indefinite lived
intangible assets as of January 1, 2002 in the first
quarter of 2002. Any impairment charge resulting from these
transitional impairment tests will be reflected as the
cumulative effect of a change in accounting principle in the
first quarter of 2002. Based on the preliminary unaudited
analysis completed to date, we do not believe that the
application of these statements will have an adverse material
impact on the earnings and financial position of the Company.

Accounting
Impairment of Disposal of Long Live Assets

In August 2001, FASB issued SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets (SFAS 144) that is applicable to
financial statements issued for fiscal years beginning after
December 15, 2001. These new rules on asset impairment
supersede FASB 121 and provide a single accounting model
for long-lived assets to be disposed of. SFAS 144 removes
goodwill from its scope, describes a profitability-weighted cash
flow estimation approach to deal with situations in which
alternative courses of action to recover the carrying amount of
a long-lived asset are under consideration or a range is
estimated for the amount of possible future cash flows,
establishes a primary-asset approach to determine
the cash flow estimation period for a group of assets and
liabilities that represents the unit of accounting for a
long-lived asset to be held and used. We will adopt
SFAS 144 as of January 1, 2002, and we do not expect
this pronouncement to materially impact the results of our
operations, financial position, or cash flows.

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Item 8. Financial Statements and
Supplementary Data






INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS


|                                                |  |      |    | 
|----------------------------------------------- |  | ---- | -- | 
|                                                |  | Page
|                                                |  |     
|Report of Independent Auditors                  |  |      | 31 | 
|Consolidated Balance Sheets                     |  |      | 32 | 
|Consolidated Statements of Operations           |  |      | 33 | 
|Consolidated Statement of Shareholders
	Equity |  |      | 34 | 
|Consolidated Statements of Cash Flows           |  |      | 35 | 
|Notes to Consolidated Financial Statements      |  |      | 36 | 

30



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##### Table of Contents



REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders

Argonaut Technologies, Inc.


We have audited the accompanying consolidated
balance sheets of Argonaut Technologies, Inc. as of
December 31, 2001 and 2000, and the related consolidated
statements of operations, stockholders equity, and cash
flows for each of the three years in the period ended
December 31, 2001. Our audits also include the financial
statement schedule listed in the Index at Item 14(a). These
financial statements and schedule are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements and schedule based on our
audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of Argonaut Technologies, Inc.
at December 31, 2001 and 2000, and the consolidated results
of its operations and its cash flows for each of the three years
in the period ended December 31, 2001, in conformity with
accounting principles generally accepted in the United States.
Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the
information set forth therein.



| |                      
| | ---------------------
| | /s/ ERNST & YOUNG LLP

Palo Alto, California

February 5, 2002


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ARGONAUT TECHNOLOGIES, INC.

CONSOLIDATED BALANCE SHEETS

ASSETS

|                                                                                           |                                                                                                                                                                                                      |                            |         |        |        |   |         |        |        | 
|------------------------------------------------------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------- | ------ | ------ | - | ------- | ------ | ------ | 
|                                                                                           |                                                                                                                                                                                                      |                           
|                                                                                           |                                                                                                                                                                                                      | December 31,              
|                                                                                           |                                                                                                                                                                                                      |                           
|                                                                                           |                                                                                                                                                                                                      | 2001                       |         | 2000  
|                                                                                           |                                                                                                                                                                                                      |                            |         |       
|                                                                                           |                                                                                                                                                                                                      |                           
|                                                                                           |                                                                                                                                                                                                      | (In thousands, except     
|                                                                                           |                                                                                                                                                                                                      | share and per share data) 
|Current assets:                                                                            |                                                                                                                                                                                                      |                            |         |        |        |   |         |       
|                                                                                           | Cash and cash equivalents                                                                                                                                                                            |                            | $       | 17,996 |        |   | $       | 39,147 |       
|                                                                                           | Short-term investments                                                                                                                                                                               |                            |         | 39,636 |        |   |         | 34,225 |       
|                                                                                           | Accounts receivable, less allowance for doubtful
	accounts of $154 in 2001 and $50 in 2000                                                                                                           |                            |         | 4,187  |        |   |         | 4,088  |       
|                                                                                           | Inventories                                                                                                                                                                                          |                            |         | 4,096  |        |   |         | 2,782  |       
|                                                                                           | Note receivable from officer                                                                                                                                                                         |                            |         |       |        |   |         | 200    |       
|                                                                                           | Prepaid expenses and other current assets                                                                                                                                                            |                            |         | 784    |        |   |         | 821    |       
|                                                                                           |                                                                                                                                                                                                      |                            |         |        |        |   |         |       
|                                                                                           |                                                                                                                                                                                                      | Total current assets       |         |        | 66,699 |   |         |        | 81,263 | 
|Property and equipment, net                                                                |                                                                                                                                                                                                      |                            | 3,233   |        |        |   | 1,743   |       
|Goodwill and other purchased intangible assets,
	net of $1,157 of accumulated amortization |                                                                                                                                                                                                      |                            | 2,213   |        |        |   |        |       
|Other assets                                                                               |                                                                                                                                                                                                      |                            | 26      |        |        |   | 26      |       
|                                                                                           |                                                                                                                                                                                                      |                            |         |        |        |   |         |       
|                                                                                           |                                                                                                                                                                                                      | $                          | 72,171  |        |        | $ | 83,032  |       
|                                                                                           |                                                                                                                                                                                                      |                            |         |        |        |   |         |       
|LIABILITIES AND STOCKHOLDERS EQUITY                                                      
|Current liabilities:                                                                       |                                                                                                                                                                                                      |                            |         |        |        |   |         |       
|                                                                                           | Accounts payable                                                                                                                                                                                     |                            | $       | 1,681  |        |   | $       | 1,004  |       
|                                                                                           | Accrued compensation                                                                                                                                                                                 |                            |         | 1,421  |        |   |         | 1,097  |       
|                                                                                           | Other accrued liabilities                                                                                                                                                                            |                            |         | 1,679  |        |   |         | 1,209  |       
|                                                                                           | Deferred revenue                                                                                                                                                                                     |                            |         | 3,439  |        |   |         | 1,534  |       
|                                                                                           | Current portion of capital lease obligations                                                                                                                                                         |                            |         | 187    |        |   |         | 288    |       
|                                                                                           |                                                                                                                                                                                                      |                            |         |        |        |   |         |       
|                                                                                           |                                                                                                                                                                                                      | Total current liabilities  |         |        | 8,407  |   |         |        | 5,132  | 
|Noncurrent portion of capital lease obligations                                            |                                                                                                                                                                                                      |                            |        |        |        |   | 180     |       
|                                                                                          
|Commitments                                                                                |                                                                                                                                                                                                      |                            |         |        |        |   |         |       
|                                                                                          
|Stockholders equity:                                                                      |                                                                                                                                                                                                      |                            |         |        |        |   |         |       
|                                                                                           | Convertible preferred stock, $0.0001 par value;
	10,000,000 shares authorized at December 31, 2001 and 2000,
	issuable in series; no shares issued and outstanding at
	December 31, 2001 and 2000    |                            |         |       |        |   |         |       |       
|                                                                                           | Common stock, $0.0001 par value; 120,000,000
	shares authorized at December 31, 2001 and 2000; 19,281,691
	and 18,270,019 shares issued and outstanding at
	December 31, 2001 and 2000, respectively |                            |         | 2      |        |   |         | 2      |       
|Additional paid-in capital                                                                 |                                                                                                                                                                                                      |                            | 120,036 |        |        |   | 115,283 |       
|Deferred stock compensation                                                                |                                                                                                                                                                                                      |                            | (1,008  | )      |        |   | (3,055  | )     
|Accumulated deficit                                                                        |                                                                                                                                                                                                      |                            | (55,234 | )      |        |   | (34,439 | )     
|Accumulated other comprehensive loss                                                       |                                                                                                                                                                                                      |                            | (32     | )      |        |   | (71     | )     
|                                                                                           |                                                                                                                                                                                                      |                            |         |        |        |   |         |       
|                                                                                           |                                                                                                                                                                                                      | Total stockholders equity |         |        | 63,764 |   |         |        | 77,720 | 
|                                                                                           |                                                                                                                                                                                                      |                            |         |        |        |   |         |       
|                                                                                           |                                                                                                                                                                                                      | $                          | 72,171  |        |        | $ | 83,032  |       
|                                                                                           |                                                                                                                                                                                                      |                            |         |        |        |   |         |       

See accompanying notes.

32



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##### Table of Contents



ARGONAUT TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                                                                                                                                      |                                                                 |                                       |         |        |        |      |        |        |        |   |        |        |        | 
|----------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------- | ------------------------------------- | ------- | ------ | ------ | ---- | ------ | ------ | ------ | - | ------ | ------ | ------ | 
|                                                                                                                                                      |                                                                 |                                      
|                                                                                                                                                      |                                                                 | Years Ended December 31,             
|                                                                                                                                                      |                                                                 |                                      
|                                                                                                                                                      |                                                                 | 2001                                  |         | 2000   |        | 1999
|                                                                                                                                                      |                                                                 |                                       |         |        |        |     
|                                                                                                                                                      |                                                                 |                                      
|                                                                                                                                                      |                                                                 | (In thousands, except per share data)
|Net sales:                                                                                                                                            |                                                                 |                                       |         |        |        |      |        |        |        |   |        |       
|                                                                                                                                                      | Products                                                        |                                       | $       | 15,281 |        |      | $      | 16,816 |        |   | $      | 10,010 |       
|                                                                                                                                                      | Services                                                        |                                       |         | 1,782  |        |      |        | 633    |        |   |        | 548    |       
|                                                                                                                                                      |                                                                 |                                       |         |        |        |      |        |        |        |   |        |       
|                                                                                                                                                      |                                                                 | Total net sales                       |         |        | 17,063 |      |        |        | 17,449 |   |        |        | 10,558 | 
|                                                                                                                                                      |                                                                 |                                       |         |        |        |      |        |        |        |   |        |       
|Costs and expenses:                                                                                                                                   |                                                                 |                                       |         |        |        |      |        |        |        |   |        |       
|                                                                                                                                                      | Costs of products                                               |                                       |         | 9,108  |        |      |        | 7,941  |        |   |        | 4,564  |       
|                                                                                                                                                      | Costs of services                                               |                                       |         | 323    |        |      |        | 53     |        |   |        | 125    |       
|                                                                                                                                                      | Research and development (note 1)                               |                                       |         | 7,089  |        |      |        | 5,057  |        |   |        | 4,180  |       
|                                                                                                                                                      | Selling, general and administrative (note 1)                    |                                       |         | 16,686 |        |      |        | 13,819 |        |   |        | 9,125  |       
|                                                                                                                                                      | Amortization of goodwill and other purchased
	intangible assets |                                       |         | 1,157  |        |      |        |       |        |   |        |       |       
|                                                                                                                                                      | Acquired in-process research and development                    |                                       |         | 270    |        |      |        |       |        |   |        |       |       
|                                                                                                                                                      | Restructuring charges                                           |                                       |         | 384    |        |      |        |       |        |   |        |       |       
|                                                                                                                                                      | Impairment charge                                               |                                       |         | 5,520  |        |      |        |       |        |   |        |       |       
|                                                                                                                                                      |                                                                 |                                       |         |        |        |      |        |        |        |   |        |       
|                                                                                                                                                      |                                                                 | Total costs and expenses              |         |        | 40,537 |      |        |        | 26,870 |   |        |        | 17,994 | 
|                                                                                                                                                      |                                                                 |                                       |         |        |        |      |        |        |        |   |        |       
|Loss from operations                                                                                                                                  |                                                                 |                                       | (23,474 | )      |        |      | (9,421 | )      |        |   | (7,436 | )     
|Other income (expenses):                                                                                                                              |                                                                 |                                       |         |        |        |      |        |        |        |   |        |       
|                                                                                                                                                      | Interest and other income                                       |                                       |         | 2,914  |        |      |        | 2,403  |        |   |        | 531    |       
|                                                                                                                                                      | Interest and other expense                                      |                                       |         | (235   | )      |      |        | (503   | )      |   |        | (698   | )     
|                                                                                                                                                      |                                                                 |                                       |         |        |        |      |        |        |        |   |        |       
|Net loss                                                                                                                                              |                                                                 | $                                     | (20,795 | )      |        | $    | (7,521 | )      |        | $ | (7,603 | )     
|                                                                                                                                                      |                                                                 |                                       |         |        |        |      |        |        |        |   |        |       
|Net loss per common share, basic & diluted                                                                                                            |                                                                 | $                                     | (1.09   | )      |        | $    | (0.79  | )      |        | $ | (3.55  | )     
|                                                                                                                                                      |                                                                 |                                       |         |        |        |      |        |        |        |   |        |       
|Weighted-average shares used in computing net
	loss per common share, basic and diluted                                                               |                                                                 |                                       | 19,048  |        |        |      | 9,538  |        |        |   | 2,142  |       
|                                                                                                                                                      |                                                                 |                                       |         |        |        |      |        |        |        |   |        |       
|Note 1: Research and development expenses and
	selling, general and administrative expenses include charges for
	stock-based compensation as follows:
|                                                                                                                                                     
|Research and development                                                                                                                              |                                                                 | $                                     | 603     |        |        | $    | 1,191  |        |        | $ | 208    |       
|Selling, general and administrative                                                                                                                   |                                                                 |                                       | 1,087   |        |        |      | 2,296  |        |        |   | 457    |       
|                                                                                                                                                      |                                                                 |                                       |         |        |        |      |        |        |        |   |        |       
|                                                                                                                                                      |                                                                 | $                                     | 1,690   |        |        | $    | 3,487  |        |        | $ | 665    |       
|                                                                                                                                                      |                                                                 |                                       |         |        |        |      |        |        |        |   |        |       

See accompanying notes.

33



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##### Table of Contents



ARGONAUT TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY

(In thousands, except share data)


|                              |                                                                                                            |                                          |                          |              |   |            |   |          |   |             |            |               |   |               |   |               |   |        |         |        |   |   |        |        |   |   |         |         |   |   |     |   |      |   |        |         |      |         |  
|----------------------------- | ---------------------------------------------------------------------------------------------------------- | ---------------------------------------- | ------------------------ | ------------ | - | ---------- | - | -------- | - | ----------- | ---------- | ------------- | - | ------------- | - | ------------- | - | ------ | ------- | ------ | - | - | ------ | ------ | - | - | ------- | ------- | - | - | --- | - | ---- | - | ------ | ------- | ---- | ------- | -
|                              |                                                                                                            |                                          |                          |              |   |            |   |          |   |             |            | Accumulated   |   |              
|                              |                                                                                                            | Preferred Stock                          |                          | Common Stock |   | Additional |   | Deferred |   |             |            | Other         |   | Total        
|                              |                                                                                                            |                                          |                          |              |   | Paid-In    |   | Stock    |   | Accumulated |            | Comprehensive |   | Stockholders
|                              |                                                                                                            | Shares                                   |                          | Amount       |   | Shares     |   | Amount   |   | Capital     |            | Compensation  |   | Deficit       |   | Income (Loss) |   | Equity
|                              |                                                                                                            |                                          |                          |              |   |            |   |          |   |             |            |               |   |               |   |               |   |       
|Balances at December 31, 1998 |                                                                                                            |                                          | 8,730,573                |              |   | $          | 1 |          |   |             | 2,023,933  |               |   | $             |  |               |   | $      | 20,179  |        |   | $ |       |        |   | $ | (19,315 | )       |   | $ |    |   |      | $ | 865    |        
|                              | Net loss                                                                                                   |                                          |                          |             |   |            |   |         |   |             |            |              |   |               |   |              |   |        |         |       |   |   |        |       |   |   |         | (7,603  | ) |   |     |  |      |   |        | (7,603  | )   
|                              | Other comprehensive income:                                                                                |                                          |                          |              |   |            |   |          |   |             |            |               |   |               |   |               |   |        |         |        |   |   |        |        |   |   |         |         |   |   |     |   |      |   |        |         |     
|                              |                                                                                                            | Foreign currency translation adjustments |                          |              |  |            |   |          |  |             |            |               |  |               |   |               |  |        |         |        |  |   |        |        |  |   |         |         |  |   |     |   | 2    |   |        |         | 2    |        
|                              |                                                                                                            |                                          |                          |              |   |            |   |          |   |             |            |               |   |               |   |               |   |        |         |        |   |   |        |        |   |   |         |         |   |   |     |   |      |   |        |        
|                              |                                                                                                            |                                          | Total comprehensive loss |              |   |            |   |          |   |             |            |               |   |               |   |               |   |        |         |        |   |   |        |        |   |   |         |         |   |   |     |   |      |   |        |         |      | (7,601  | )
|                              | Issuance of common stock upon exercise of stock
	options, net of repurchase                                |                                          |                          |             |   |            |   |         |   |             |            | 287,840       |   |               |   |              |   |        |         | 101    |   |   |        |       |   |   |         |        |   |   |     |  |      |   |        | 101     |     
|                              | Issuance of common stock to director in exchange
	for promissory note                                      |                                          |                          |             |   |            |   |         |   |             |            | 13,200        |   |               |   |              |   |        |         | 15     |   |   |        |       |   |   |         |        |   |   |     |  |      |   |        | 15      |     
|                              | Issuance of common stock as charitable donation                                                            |                                          |                          |             |   |            |   |         |   |             |            | 17,600        |   |               |   |              |   |        |         | 20     |   |   |        |       |   |   |         |        |   |   |     |  |      |   |        | 20      |     
|                              | Issuance of Series D convertible preferred
	stock                                                          |                                          |                          | 2,608,695    |   |            |   |         |   |             |            |              |   |               |   |              |   |        |         | 14,961 |   |   |        |       |   |   |         |        |   |   |     |  |      |   |        | 14,961  |     
|                              | Issuance of warrant for loan arrangement                                                                   |                                          |                          |             |   |            |   |         |   |             |            |              |   |               |   |              |   |        |         | 22     |   |   |        |       |   |   |         |        |   |   |     |  |      |   |        | 22      |     
|                              | Compensation expense related to issuance of
	options to consultants                                        |                                          |                          |             |   |            |   |         |   |             |            |              |   |               |   |              |   |        |         | 12     |   |   |        |       |   |   |         |        |   |   |     |  |      |   |        | 12      |     
|                              | Deferred stock compensation                                                                                |                                          |                          |             |   |            |   |         |   |             |            |              |   |               |   |              |   |        |         | 3,759  |   |   |        | (3,759 | ) |   |         |        |   |   |     |  |      |   |        |        |     
|                              | Amortization of deferred stock compensation                                                                |                                          |                          |             |   |            |   |         |   |             |            |              |   |               |   |              |   |        |         |       |   |   |        | 653    |   |   |         |        |   |   |     |  |      |   |        | 653     |     
|                              |                                                                                                            |                                          |                          |              |   |            |   |          |   |             |            |               |   |               |   |               |   |        |         |        |   |   |        |        |   |   |         |         |   |   |     |   |      |   |        |        
|Balances at December 31, 1999 |                                                                                                            |                                          | 11,339,268               |              |   |            | 1 |          |   |             | 2,342,573  |               |   |               |  |               |   |        | 39,069  |        |   |   | (3,106 | )      |   |   | (26,918 | )       |   |   | 2   |   |      |   | 9,048  |        
|                              | Net loss                                                                                                   |                                          |                          |             |   |            |   |         |   |             |            |              |   |               |   |              |   |        |         |       |   |   |        |       |   |   |         | (7,521  | ) |   |     |  |      |   |        | (7,521  | )   
|                              | Other comprehensive loss:                                                                                  |                                          |                          |              |   |            |   |          |   |             |            |               |   |               |   |               |   |        |         |        |   |   |        |        |   |   |         |         |   |   |     |   |      |   |        |         |     
|                              |                                                                                                            | Foreign currency translation adjustments |                          |              |  |            |   |          |  |             |            |               |  |               |   |               |  |        |         |        |  |   |        |        |  |   |         |         |  |   |     |   | (73  | ) |        |         | (73  | )      
|                              |                                                                                                            |                                          |                          |              |   |            |   |          |   |             |            |               |   |               |   |               |   |        |         |        |   |   |        |        |   |   |         |         |   |   |     |   |      |   |        |        
|                              |                                                                                                            |                                          | Total comprehensive loss |              |   |            |   |          |   |             |            |               |   |               |   |               |   |        |         |        |   |   |        |        |   |   |         |         |   |   |     |   |      |   |        |         |      | (7,594  | )
|                              | Issuance of common stock upon exercise of stock
	options, net of repurchase                                |                                          |                          |             |   |            |   |         |   |             |            | 658,898       |   |               |   |              |   |        |         | 320    |   |   |        |       |   |   |         |        |   |   |     |  |      |   |        | 320     |     
|                              | Issuance of common stock upon the completion of
	initial public offerings, net of issuance costs of $6,891 |                                          |                          |             |   |            |   |         |   |             |            | 5,290,000     |   |               |   | 1             |   |        |         | 72,458 |   |   |        |       |   |   |         |        |   |   |     |  |      |   |        | 72,459  |     
|                              | Conversion of preferred stock upon close of
	initial public offering at an exchange rate of 0.88 for 1     |                                          |                          | (11,339,268  | ) |            |   | (1       | ) |             |            | 9,978,548     |   |               |   | 1             |   |        |         |       |   |   |        |       |   |   |         |        |   |   |     |  |      |   |        |        |     
|                              | Compensation expense related to issuance of
	options to consultants                                        |                                          |                          |             |   |            |   |         |   |             |            |              |   |               |   |              |   |        |         | 617    |   |   |        |       |   |   |         |        |   |   |     |  |      |   |        | 617     |     
|                              | Deferred stock compensation                                                                                |                                          |                          |             |   |            |   |         |   |             |            |              |   |               |   |              |   |        |         | 2,819  |   |   |        | (2,819 | ) |   |         |        |   |   |     |  |      |   |        |        |     
|                              | Amortization of deferred stock compensation                                                                |                                          |                          |             |   |            |   |         |   |             |            |              |   |               |   |              |   |        |         |       |   |   |        | 2,870  |   |   |         |        |   |   |     |  |      |   |        | 2,870   |     
|                              |                                                                                                            |                                          |                          |              |   |            |   |          |   |             |            |               |   |               |   |               |   |        |         |        |   |   |        |        |   |   |         |         |   |   |     |   |      |   |        |        
|Balances at December 31, 2000 |                                                                                                            |                                          |                         |              |   |            |  |          |   |             | 18,270,019 |               |   |               | 2 |               |   |        | 115,283 |        |   |   | (3,055 | )      |   |   | (34,439 | )       |   |   | (71 | ) |      |   | 77,720 |        
|                              | Net loss                                                                                                   |                                          |                          |             |   |            |   |         |   |             |            |              |   |               |   |              |   |        |         |       |   |   |        |       |   |   |         | (20,795 | ) |   |     |  |      |   |        | (20,795 | )   
|                              | Other comprehensive income (loss):                                                                         |                                          |                          |              |   |            |   |          |   |             |            |               |   |               |   |               |   |        |         |        |   |   |        |        |   |   |         |         |   |   |     |   |      |   |        |         |     
|                              |                                                                                                            | Unrealized gain on investments           |                          |              |  |            |   |          |  |             |            |               |  |               |   |               |  |        |         |        |  |   |        |        |  |   |         |         |  |   |     |   | 173  |   |        |         | 173  |        
|                              |                                                                                                            | Foreign currency translation adjustments |                          |              |  |            |   |          |  |             |            |               |  |               |   |               |  |        |         |        |  |   |        |        |  |   |         |         |  |   |     |   | (134 | ) |        |         | (134 | )      
|                              |                                                                                                            |                                          |                          |              |   |            |   |          |   |             |            |               |   |               |   |               |   |        |         |        |   |   |        |        |   |   |         |         |   |   |     |   |      |   |        |        
|                              |                                                                                                            |                                          | Total comprehensive loss |              |   |            |   |          |   |             |            |               |   |               |   |               |   |        |         |        |   |   |        |        |   |   |         |         |   |   |     |   |      |   |        |         |      | (20,756 | )
|                              | Issuance of common stock upon exercise of stock
	options, net of repurchase                                |                                          |                          |             |   |            |   |         |   |             |            | 209,030       |   |               |   |              |   |        |         | 190    |   |   |        |       |   |   |         |        |   |   |     |  |      |   |        | 190     |     
|                              | Issuance of common stock related to the
	acquisition of Camile Products, LLC                               |                                          |                          |             |   |            |   |         |   |             |            | 666,667       |   |               |   |              |   |        |         | 4,667  |   |   |        |       |   |   |         |        |   |   |     |  |      |   |        | 4,667   |     
|                              | Issuance of common stock related to employee
	stock purchase plan                                          |                                          |                          |             |   |            |   |         |   |             |            | 95,495        |   |               |   |              |   |        |         | 323    |   |   |        |       |   |   |         |        |   |   |     |  |      |   |        | 323     |     
|                              | Issuance of shares of common stock upon exercise
	of warrants                                              |                                          |                          |             |   |            |   |         |   |             |            | 40,480        |   |               |   |               |   |        |         |       |   |   |        |       |   |   |         |        |   |   |     |  |      |   |        |        |     
|                              | Compensation expense related to issuance of
	options to consultants                                        |                                          |                          |             |   |            |   |         |   |             |            |              |   |               |   |              |   |        |         | 137    |   |   |        |       |   |   |         |        |   |   |     |  |      |   |        | 137     |     
|                              | Deferred stock compensation associated with stock
	options cancelled                                       |                                          |                          |             |   |            |   |         |   |             |            |              |   |               |   |              |   |        |         | (564   | ) |   |        | 494    |   |   |         |        |   |   |     |  |      |   |        | (70     | )   
|                              | Amortization of deferred stock compensation                                                                |                                          |                          |             |   |            |   |         |   |             |            |              |   |               |   |              |   |        |         |       |   |   |        | 1,553  |   |   |         |        |   |   |     |  |      |   |        | 1,553   |     
|                              |                                                                                                            |                                          |                          |              |   |            |   |          |   |             |            |               |   |               |   |               |   |        |         |        |   |   |        |        |   |   |         |         |   |   |     |   |      |   |        |        
|Balances at December 31, 2001 |                                                                                                            |                                          |                         |              |   | $          |  |          |   |             | 19,281,691 |               |   | $             | 2 |               |   | $      | 120,036 |        |   | $ | (1,008 | )      |   | $ | (55,234 | )       |   | $ | (32 | ) |      | $ | 63,764 |        
|                              |                                                                                                            |                                          |                          |              |   |            |   |          |   |             |            |               |   |               |   |               |   |        |         |        |   |   |        |        |   |   |         |         |   |   |     |   |      |   |        |        

See accompanying notes.

34



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##### Table of Contents



ARGONAUT TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                                             |                                                                 |                                           |                                                      |       |       |         |         |       |        |         |        |     |       |        |  
|---------------------------------------------------------------------------- | --------------------------------------------------------------- | ----------------------------------------- | ---------------------------------------------------- | ----- | ----- | ------- | ------- | ----- | ------ | ------- | ------ | --- | ----- | ------ | -
|                                                                             |                                                                 |                                          
|                                                                             |                                                                 | Years Ended December 31,                 
|                                                                             |                                                                 |                                          
|                                                                             |                                                                 | 2001                                      |                                                      | 2000  |       | 1999   
|                                                                             |                                                                 |                                           |                                                      |       |       |        
|                                                                             |                                                                 |                                          
|                                                                             |                                                                 | (In thousands)                           
|Operating Activities                                                         |                                                                 |                                           |                                                      |       |       |         |         |       |        |         |        |    
|Net loss                                                                     |                                                                 | $                                         | (20,795                                              | )     |       | $       | (7,521  | )     |        | $       | (7,603 | )  
|Adjustments to reconcile net loss to net cash
	used in operating activities: |                                                                 |                                           |                                                      |       |       |         |         |       |        |         |        |    
|                                                                             | Depreciation and amortization                                   |                                           |                                                      | 518   |       |         |         | 723   |        |         |        | 714 |      
|                                                                             | Amortization of goodwill and other purchased
	intangible assets |                                           |                                                      | 1,157 |       |         |         |      |        |         |        |    |      
|                                                                             | Stock-based compensation                                        |                                           |                                                      | 1,620 |       |         |         | 3,487 |        |         |        | 665 |      
|                                                                             | Issuance of equity for noncash benefits                         |                                           |                                                      |      |       |         |         |      |        |         |        | 42  |      
|                                                                             | Provision for doubtful accounts                                 |                                           |                                                      | 104   |       |         |         |      |        |         |        |    |      
|                                                                             | Impairment charges                                              |                                           |                                                      | 5,520 |       |         |         |      |        |         |        |    |      
|                                                                             | Acquired in-process research and development                    |                                           |                                                      | 270   |       |         |         |      |        |         |        |    |      
|                                                                             | Non-cash portion of restructuring charges                       |                                           |                                                      | 22    |       |         |         |       |        |         |        |     |      
|                                                                             | Change in cumulative translation adjustment                     |                                           |                                                      | (134  | )     |         |         | (73   | )      |         |        | 2   |      
|                                                                             | Changes in assets and liabilities:                              |                                           |                                                      |       |       |         |         |       |        |         |        |     |      
|                                                                             |                                                                 | Accounts receivable                       |                                                      |       | 253   |         |         |       | (626   | )       |        |     | (861  | )     
|                                                                             |                                                                 | Inventories                               |                                                      |       | (739  | )       |         |       | (672   | )       |        |     | 81    |       
|                                                                             |                                                                 | Note receivable from officer              |                                                      |       | 200   |         |         |       |       |         |        |     |      |       
|                                                                             |                                                                 | Prepaid expenses and other current assets |                                                      |       | 83    |         |         |       | (232   | )       |        |     | (176  | )     
|                                                                             |                                                                 | Other assets                              |                                                      |       | 138   |         |         |       |       |         |        |     | 20    |       
|                                                                             |                                                                 | Accounts payable                          |                                                      |       | 331   |         |         |       | 139    |         |        |     | 250   |       
|                                                                             |                                                                 | Accrued compensation                      |                                                      |       | 284   |         |         |       | 341    |         |        |     | 53    |       
|                                                                             |                                                                 | Other accrued liabilities                 |                                                      |       | 225   |         |         |       | 552    |         |        |     | (171  | )     
|                                                                             |                                                                 | Deferred revenue                          |                                                      |       | 1,486 |         |         |       | (1,074 | )       |        |     | 1,584 |       
|                                                                             |                                                                 |                                           |                                                      |       |       |         |         |       |        |         |        |    
|                                                                             |                                                                 |                                           | Net cash used in operating activities                |       |       | (9,457  | )       |       |        | (4,956  | )      |     |       | (5,400 | )
|                                                                             |                                                                 |                                           |                                                      |       |       |         |         |       |        |         |        |    
|Investing Activities                                                         |                                                                 |                                           |                                                      |       |       |         |         |       |        |         |        |    
|Capital expenditures                                                         |                                                                 |                                           | (1,779                                               | )     |       |         | (846    | )     |        |         | (690   | )  
|Business acquisition (net of cash received)                                  |                                                                 |                                           | (4,255                                               | )     |       |         |        |       |        |         |       |    
|Purchase of short-term investments                                           |                                                                 |                                           | (49,498                                              | )     |       |         | (34,309 | )     |        |         | (6,127 | )  
|Maturities and sale of short-term investments                                |                                                                 |                                           | 44,260                                               |       |       |         | 6,211   |       |        |         |       |    
|                                                                             |                                                                 |                                           |                                                      |       |       |         |         |       |        |         |        |    
|                                                                             |                                                                 |                                           | Net cash used in investing activities                |       |       | (11,272 | )       |       |        | (28,944 | )      |     |       | (6,817 | )
|                                                                             |                                                                 |                                           |                                                      |       |       |         |         |       |        |         |        |    
|Financing Activities                                                         |                                                                 |                                           |                                                      |       |       |         |         |       |        |         |        |    
|Proceeds from long-term debt                                                 |                                                                 |                                           |                                                     |       |       |         |        |       |        |         | 1,000  |    
|Repayment of long-term debt                                                  |                                                                 |                                           | (654                                                 | )     |       |         | (4,375  | )     |        |         | (668   | )  
|Principal payments on capital lease obligations                              |                                                                 |                                           | (281                                                 | )     |       |         | (303    | )     |        |         | (492   | )  
|Net proceeds from issuances of common stock                                  |                                                                 |                                           | 513                                                  |       |       |         | 72,779  |       |        |         | 101    |    
|Net proceeds from issuances of convertible
	preferred stock                  |                                                                 |                                           |                                                     |       |       |         |        |       |        |         | 14,961 |    
|                                                                             |                                                                 |                                           |                                                      |       |       |         |         |       |        |         |        |    
|                                                                             |                                                                 |                                           | Net cash provided by (used in) financing
	activities |       |       | (422    | )       |       |        | 68,101  |        |     |       | 14,902 |  
|                                                                             |                                                                 |                                           |                                                      |       |       |         |         |       |        |         |        |    
|Net increase (decrease) in cash and cash
	equivalents                        |                                                                 |                                           | (21,151                                              | )     |       |         | 34,201  |       |        |         | 2,685  |    
|Cash and cash equivalents at beginning of year                               |                                                                 |                                           | 39,147                                               |       |       |         | 4,946   |       |        |         | 2,261  |    
|                                                                             |                                                                 |                                           |                                                      |       |       |         |         |       |        |         |        |    
|Cash and cash equivalents at end of year                                     |                                                                 | $                                         | 17,996                                               |       |       | $       | 39,147  |       |        | $       | 4,946  |    
|                                                                             |                                                                 |                                           |                                                      |       |       |         |         |       |        |         |        |    
|Supplemental Disclosure of Cash Flow
	Information                            |                                                                 |                                           |                                                      |       |       |         |         |       |        |         |        |    
|Interest paid                                                                |                                                                 | $                                         | 42                                                   |       |       | $       | 380     |       |        | $       | 577    |    
|                                                                             |                                                                 |                                           |                                                      |       |       |         |         |       |        |         |        |    
|Supplemental Disclosure of Cash Flow
	Information                            |                                                                 |                                           |                                                      |       |       |         |         |       |        |         |        |    
|Options and warrants issued for services                                     |                                                                 | $                                         |                                                     |       |       | $       |        |       |        | $       | 22     |    
|                                                                             |                                                                 |                                           |                                                      |       |       |         |         |       |        |         |        |    
|Common stock for promissory note                                             |                                                                 | $                                         |                                                     |       |       | $       |        |       |        | $       | 15     |    
|                                                                             |                                                                 |                                           |                                                      |       |       |         |         |       |        |         |        |    
|Deferred stock compensation                                                  |                                                                 | $                                         |                                                     |       |       | $       | 2,819   |       |        | $       | 3,759  |    
|                                                                             |                                                                 |                                           |                                                      |       |       |         |         |       |        |         |        |    

See accompanying notes.

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##### Table of Contents



ARGONAUT TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

1.  Summary of Significant
Accounting Policies

Nature of Operations and Basis of
Presentation

Argonaut Technologies, Inc. (the
Company) was incorporated in the state of Delaware
on November 10, 1994. The Company is a leader in the
development, manufacturing and marketing of innovative products
designed to help chemists engaged in the discovery and
development of new molecules increase their productivity and
reduce their operating costs without compromising the scientific
integrity of their research. Pharmaceutical, biotechnology and
chemical industry organizations worldwide have implemented the
Companys solutions to achieve faster time to market for
new products. The Companys products include a variety of
instruments and chemistry consumables that enable chemists to
increase their productivity, accelerate the drug development
process and reduce costs. Its principal markets are in the
United States, Western Europe, and the Far East.

The Company has three wholly owned subsidiaries,
Argonaut Technologies Systems, Inc. (formerly Camile Products,
LLC.) in Indiana, Argonaut Technologies KK in Japan and Argonaut
Technologies AG in Switzerland.

Principles of Consolidation

The consolidated financial statements include the
accounts and results of operations of the Company and its wholly
owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated on consolidation.

Foreign Currency Translation

The Company translates the assets and liabilities
of its foreign subsidiaries stated in local functional
currencies to U.S. dollars at the rates of exchange in effect at
the end of the period. Revenues and expenses are translated
using rates of exchange in effect during the period. Gains and
losses from translation of financial statements denominated in
foreign currencies, if material, are included as a separate
component of other comprehensive income (loss) in the
Consolidated Statements of Stockholders Equity.

The Company records foreign currency transactions
at the exchange rate prevailing at the date of the transaction.
Monetary assets and liabilities denominated in foreign currency
are retranslated at the exchange rates in effect at the balance
sheet date. All translation differences arising from foreign
currency transactions are recorded through profit and loss. The
Company recorded foreign currency translation losses of
approximately $131,000, $23,000, and $0, for 2001, 2000, and
1999, respectively.

Use of Estimates

The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States requires management to make estimates and
assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ
from these estimates.

Cash, Cash Equivalents, and Short-Term
Investments

The Company invests its excess cash in deposits,
money market accounts, and high quality marketable debt
securities. The Company considers all highly liquid investments
with a maximum original maturity of 90 days or less at the
time of purchase to be cash equivalents.

The Company accounts for its investments in
marketable securities in accordance with Statement of Financial
Accounting Standards (SFAS) No. 115,
Accounting for Certain Investments in Debt and Equity
Securities (SFAS 115). Management
determines the appropriate classification of securities at the
time of purchase and reevaluates such designation as of each
balance sheet date. The Companys short-term

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##### Table of Contents



ARGONAUT TECHNOLOGIES, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

investments are classified as available-for-sale
and are carried at fair market value. The fair market value is
based upon market prices quoted on the last day of the fiscal
year., with unrealized gains and losses reported as a separate
component of other comprehensive income (loss) in the
statement of stockholders equity, if material. Realized
gains and losses and declines in value judged to be
other-than-temporary, if any, on short-term investments are
included in other income. The cost of securities sold is based
on the specific identification method. Interest on securities
classified as available-for-sale is included in interest income.

Revenue Recognition

For each arrangement, the Company determines
whether persuasive evidence of an arrangement exists, delivery
has occurred or services have been rendered, collectibility is
reasonably assured and fees are fixed and determinable. If any
of these criteria are not met, revenue recognition is deferred
until all of the criteria are met.

Product Revenue

Revenue related to product sales with no future
obligation is recognized upon shipment when the recognition
criteria have been met. For those products where we have
obligations to provide installation services, revenue is
recognized upon installation when the recognition criteria have
been met. Sales that require customer acceptance are not
recognized as revenue until the requirements have been met.

Revenue Arrangements With
Significant Implementation Services

In certain circumstances, the Company enters into
revenue arrangements whereby it sells to its customer products
with significant implementation services. The Company recognizes
revenue for these arrangements using the
percentage-of-completion method of accounting unless the Company
is unable to make reasonable estimates under that method, in
which case revenue is recognized on a completed contract basis.
Losses on fixed price contracts are recognized in the period in
which the loss becomes known.

Service Revenue

Maintenance contract revenue is recognized
ratably over the contractual period; training and other services
revenue is recognized as the services are rendered.

Shipping and Handling Costs

Shipping and handling costs are classified as a
component of cost of products.

Product Warranty

The Company generally warrants its equipment for
a period of one year and provides a reserve for estimated
warranty costs concurrent with the recognition of revenue. The
Company also sells warranty extensions and the related revenue
is recognized ratably over the term of the extension. Warranty
costs incurred during the extension period are expensed on an
as-incurred basis.

Software Development Costs

Software development costs included in the
research and development of new products and enhancements to
existing products are expensed as incurred until technological
feasibility in the form of a working model has been established.
To date, software development costs subsequent to reaching
feasibility have not been significant and accordingly, no costs
have been capitalized.

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##### Table of Contents



ARGONAUT TECHNOLOGIES, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

Advertising Costs

Advertising costs are accounted for as expenses
in the period in which they are incurred. Advertising expense
for 2001, 2000, and 1999 was $696,000, $373,000, and $274,000,
respectively.

Inventories

Inventories are stated at the lower of cost (on a
first-in, first-out cost method) or market value.

Property and Equipment

Property and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation and
amortization are calculated using the straight-line method over
the estimated useful lives of the assets, which range from two
to five years. Leasehold improvements are amortized over the
shorter of the lease term or the estimated useful life.

Goodwill and Other Purchased Intangible
Assets

Goodwill and other purchased intangible assets
result from the acquisition of ATSI. Goodwill and other
intangible assets have been amortized on a straight-line basis
over the estimated useful lives of these assets ranging from 3
to 10 years. See also the Recent accounting
pronouncements section below.

Impairment of Long-Lived Assets

In accordance with the provisions of SFAS
No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of
(SFAS 121), the Company reviews long-lived
assets, including goodwill, for impairment whenever events or
changes in business circumstances indicate that the carrying
amount of the assets may not be fully recoverable, such as a
significant industry downturn, significant decline in the market
value of the Company, or significant reductions in projected
future cash flows. Under SFAS 121, an impairment loss would
be recognized when estimated undiscounted future cash flows
expected to result from the use of the asset and its eventual
disposition is less than it carrying amount. Impairment, if any,
is assessed using discounted cash flows.

Downturns in the pharmaceutical, biotechnology
and chemical industries have negatively impacted the forecasted
revenues and expected cash flows from ATSI. The comparison of
the undiscounted expected future cash flows to the carrying
amount of the related purchased intangible assets resulted in an
impairment of the assets acquired, and a write-down of these
assets of approximately $5.5 million during our fourth
quarter of fiscal 2001. The assumptions supporting the estimated
future cash flows, including discount rate, reflect
managements best estimates. The impairment charge of the
goodwill and other purchased intangible assets are separately
presented as a component of costs and expenses on the
Consolidated Statements of Operations.

Concentrations of Risk

The Company outsources part of its manufacturing
process to third party contractors. There are no other third
party contractors who could readily assume this manufacturing
function on short notice. Any delay in production could result
in failure to meet customer demand.

Cash equivalents and short-term investments are
financial instruments, which potentially subject the Company to
concentration of risk to the extent recorded on the balance
sheet. Management of the Company believes it has established
guidelines for investment of its excess cash relative to
diversification and maturities that maintain safety and
liquidity.

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##### Table of Contents



ARGONAUT TECHNOLOGIES, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

Accounting for Stock-Based
Compensation

As permitted by SFAS No. 123,
Accounting for Stock-Based Compensation
(SFAS 123), the Company has elected to account
for its employee stock options in accordance with the provisions
of Accounting Principles Board No. 25, Accounting for
Stock Issued to Employees (APB 25) and
related interpretations with pro forma disclosures required by
SFAS 123.

Equity instruments granted to non-employees are
accounted for using the Black-Scholes valuation model prescribed
by SFAS 123 and, in accordance with Emerging Issues Task Force
Consensus No. 96-18, Accounting for Equity
Instruments That Are Issued to Other Than Employees for
Acquiring or in Conjunction with Selling Goods or
Services, the equity instruments are subject to periodic
revaluations over their vesting terms. The expense is recognized
as the instruments vest.

Comprehensive Loss

SFAS No. 130, Reporting Comprehensive
Income (SFAS 130), requires unrealized
gains or losses on the Companys short-term investments
designated as available-for-sale securities and foreign currency
translation adjustments to be included as part of total
comprehensive loss. Total comprehensive loss has been disclosed
in the consolidated statement of stockholders equity.

Net Loss Per Share

Net loss per share has been computed according to
the SFAS No. 128, Earnings Per Share, which
requires disclosure of basic and diluted earnings per share.
Basic earnings per share excludes any dilutive effects of
options, shares subject to repurchase, warrants, and convertible
securities. Diluted earnings per share includes the impact of
potentially dilutive securities (calculated using the treasury
stock method).

Pro forma net loss per share includes shares
issuable upon the conversion of outstanding shares of preferred
stock (using the as-if-converted method) from the original date
of issuance.

A reconciliation of shares used in the
calculations is as follows (in thousands):

|                   |                                                                                                      |                          |   |        |   |      |   |        |   |  |   |        |  
|------------------ | ---------------------------------------------------------------------------------------------------- | ------------------------ | - | ------ | - | ---- | - | ------ | - |  | - | ------ | -
|                   |                                                                                                      |                         
|                   |                                                                                                      | Years Ended December 31,
|                   |                                                                                                      |                         
|                   |                                                                                                      | 2001                     |   | 2000   |   | 1999
|                   |                                                                                                      |                          |   |        |   |     
|Basic and diluted: |                                                                                                      |                          |   |        |   |      |   |        |   |  |   |       
|                   | Weighted-average shares of common stock
	outstanding                                                 |                          |   | 19,048 |   |      |   | 9,538  |   |  |   | 2,142  |  
|                   | Adjustment to reflect weighted-average effect of
	assumed conversions of preferred stock (unaudited) |                          |   |       |   |      |   | 5,471  |   |  |   | 9,121  |  
|                   |                                                                                                      |                          |   |        |   |      |   |        |   |  |   |       
|                   | Weighted-average shares used in pro forma net
	loss per share, basic and diluted (unaudited)         |                          |   | 19,048 |   |      |   | 15,009 |   |  |   | 11,263 |  
|                   |                                                                                                      |                          |   |        |   |      |   |        |   |  |   |       
|                   | Pro forma net loss per share, basic and diluted
	(unaudited)                                         |                          | $ | (1.09  | ) |      | $ | (0.50  | ) |  | $ | (0.68  | )
|                   |                                                                                                      |                          |   |        |   |      |   |        |   |  |   |       

During all periods presented, the Company had
securities outstanding which could potentially dilute basic
earnings per common share in the future, but were excluded from
the computation of diluted net loss per common share, as their
effect would have been antidilutive. These outstanding
securities consist of the following (in thousands):

|                            |  |              |       |      |  |      |       |  |  |  |        | 
|--------------------------- |  | ------------ | ----- | ---- |  | ---- | ----- |  |  |  | ------ | 
|                            |  |             
|                            |  | December 31,
|                            |  |             
|                            |  | 2001         |       | 2000 |  | 1999
|                            |  |              |       |      |  |     
|Convertible preferred stock |  |              |      |      |  |      |      |  |  |  | 11,339 | 
|Outstanding options         |  |              | 2,875 |      |  |      | 1,616 |  |  |  | 1,776  | 
|Outstanding warrants        |  |              | 81    |      |  |      | 125   |  |  |  | 136    | 

39



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##### Table of Contents



ARGONAUT TECHNOLOGIES, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

Recent Accounting Pronouncements

Business Combination

In June 2001, the Financial Accounting Standards
Board issued Statements of Financial Accounting Standards
No. 141, Business Combinations, and
No. 142, Goodwill and Other Intangible Assets.
Statement 141 requires that the purchase method of accounting be
used for all business combinations initiated after June 30,
2001. Statement 141 also includes guidance on the initial
recognition and measurement of goodwill and other intangible
assets arising from business combinations completed after
June 30, 2001. Statement 142 prohibits the amortization of
goodwill and intangible assets with indefinite useful lives.
Statement 142 requires that these assets be reviewed for
impairment at least annually. Intangible assets with finite
lives will continue to be amortized over their estimated useful
lives. Additionally, Statement 142 requires that goodwill
included in the carrying value of equity method investments no
longer be amortized.

The Company will apply Statement 142 beginning in
the first quarter of 2002. Application of the nonamortization
provisions of Statement 142 will significantly reduce
amortization expense, which was approximately $1,157,000 in
fiscal 2001. The Company will reclassify identifiable intangible
assets with indefinite lives, as defined by Statement 142, to
goodwill at the date of adoption. The Company will test goodwill
for impairment using the two-step process prescribed in
Statement 142. The first step is a screen for potential
impairment, while the second step measures the amount of the
impairment, if any. The Company expects to perform the first of
the required impairment tests of goodwill and indefinite lived
intangible assets as of January 1, 2002 in the first
quarter of 2002. Any impairment charge resulting from these
transitional impairment tests will be reflected as the
cumulative effect of a change in accounting principle in the
first quarter of 2002. Based on the preliminary unaudited
analysis completed to date, we do not believe that the
application of these statements will have an adverse material
impact on the earnings and financial position of the Company.

Accounting for Impairment or
Disposal of Long-Lived Assets

In August 2001, FASB issued SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets (SFAS 144) that is applicable to financial
statements issued for fiscal years beginning after
December 15, 2001. These new rules on asset impairment
supersede FASB 121 and provide a single accounting model
for long-lived assets to be disposed of. SFAS 144 removes
goodwill from its scope, describes a profitability-weighted cash
flow estimation approach to deal with situations in which
alternative courses of action to recover the carrying amount of
a long-lived asset are under consideration or a range is
estimated for the amount of possible future cash flows,
establishes a primary-asset approach to determine
the cash flow estimation period for a group of assets and
liabilities that represents the unit of accounting for a
long-lived asset to be held and used. The Company will adopt
SFAS 144 as of January 1, 2002, and does not expect
this pronouncement to materially impact the results of its
operations, financial position, or cash flows.

2. Business Combination

On March 1, 2001, the Company acquired all
of the assets and certain liabilities of Camile Products, LLC
and renamed this subsidiary Argonaut Technologies Systems, Inc
(ATSI). ATSI markets solutions that allow
pharmaceutical and chemical companies to automate and precisely
control chemical reactions. The transaction was accounted for
using the purchase accounting method and accordingly, the
accompanying financial statements include the results of
operations of ATSI subsequent to the acquisition date. The
transaction was valued at approximately $9.0 million and
was comprised of $4.0 million cash, 666,667 shares of the
Companys common stock, and expenses related to the
transaction. The 666,667 shares were valued at $7.00 per common
share based on the closing price on the announcement date
(January 31, 2001) of the acquisition.

40



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##### Table of Contents



ARGONAUT TECHNOLOGIES, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

The total purchase cost of ATSI is as follows (in
thousands):

|                                |  |   |       | 
|------------------------------- |  | - | ----- | 
|Cash                            |  | $ | 4,000 | 
|Fair value of securities issued |  |   | 4,667 | 
|Transaction costs and expenses  |  |   | 290   | 
|                                |  |   |       | 
|                                |  | $ | 8,957 | 
|                                |  |   |       | 

At December 31, 2001, the Company recorded
an impairment charge of approximately $5.5 million related
to goodwill and other purchased intangible assets. See
Note 1.

The Company allocated the purchase price based on
the estimated fair value of the net tangible and intangible
assets acquired. In performing this allocation, the Company
considered, among other factors, the technology R&D projects
in process at the date of acquisition. With regard to the
in-process research and development projects, the Company
considered factors such as the stage of development of the
technology at the acquisition, the importance of each project to
the overall development plan, alternative future uses of the
technology and the projected incremental cash flows from the
projects when completed and any associated risks.

The final purchase price allocation is as follows
(in thousands):

|                                             |                      |   |       |       | 
|-------------------------------------------- | -------------------- | - | ----- | ----- | 
|Net tangible assets (liabilities)            |                      | $ | (203  | )    
|Acquired in-process research and development |                      |   | 270   |      
|Completed technologies                       |                      |   | 2,200 |      
|Assembled workforce                          |                      |   | 770   |      
|Customer base                                |                      |   | 590   |      
|Goodwill                                     |                      |   | 5,330 |      
|                                             |                      |   |       |      
|                                             | Total purchase price |   | $     | 8,957 | 
|                                             |                      |   |       |      

Tangible net assets acquired include cash,
accounts receivable, inventories and property and equipment.
Liabilities assumed principally include accounts payable,
accrued compensation and accrued expenses. A portion of the
purchase price has been allocated to developed technology and
acquired in-process research and development (IPR&D).
Developed technology and IPR&D were identified and valued
through extensive interviews, analysis of data provided by ATSI
concerning developmental products, their stage of development,
the time and resources needed to complete them, if applicable,
their expected income generating ability, target markets and
associated risks. The income approach, which includes an
analysis of the markets, cash flows and risks associated with
achieving such cash flows, was the primary technique utilized in
valuing the developed technology and IPR&D.

Where developmental projects had reached
technological feasibility, they were classified as developed
technology, and the value assigned to developed technology was
capitalized. Where the developmental projects had not reached
technological feasibility and had no future alternative uses,
they were classified as IPR&D and charged to expense upon
closing of the transaction. The nature of the efforts required
to develop the purchased IPR&D into commercially viable
products principally relate to the completion of all planning,
designing, prototyping, verification and testing activities that
are necessary to establish that the products can be produced to
meet their design specifications, including functions, features
and technical performance requirements.

In valuing the IPR&D, the Company considered,
among other factors, the importance of each project to the
overall development plan, projected incremental cash flows from
the projects when completed and any associated risks. The
projected incremental cash flows were discounted back to their
present value using a discount rate of 26%. The discount rate
was determined after consideration of the Companys
weighted average cost of capital and the weighted average return
on assets. Associated risks include the inherent

41



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##### Table of Contents



ARGONAUT TECHNOLOGIES, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

difficulties and uncertainties in completing each
project and thereby achieving technological feasibility,
anticipated levels of market acceptance and penetration, market
growth rates and risks related to the impact of potential
changes in future target markets.

The acquired existing technology, which is
comprised of products that are already technologically feasible,
consists of Camile TG 4.0 systems, the CLARK 4.0
system, and the Sample Loop system. The Company is amortizing
the acquired existing technology of $2.2 million on a
straight-line basis over the estimated remaining useful life of
4, 10, and 4 years, respectively.

The acquired assembled workforce is comprised of
37 skilled employees. The Company is amortizing the value
assigned to the assembled workforce of $770,000 on a
straight-line basis over an estimated remaining useful life of
3 years.

With the purchase of ATSI, the Company acquired a
customer base within the chemical and pharmaceutical industries.
The Company is amortizing the value assigned to the customer
base of $590,000 on a straight-line basis over an estimated
remaining useful life of 3 years.

Goodwill, which represents the excess of the
purchase price of an investment in an acquired business over the
fair value of the underlying net identifiable assets, is being
amortized on a straight-line basis over its estimated useful
life of 10 years.

The following unaudited pro forma summary
presents the consolidated results of operations of the Company,
excluding the charge for IPR&D, as if the acquisition of
ATSI had occurred at the beginning of 2000 and 2001 and does not
purport to be indicative of what would have occurred had the
acquisition been made as of those dates or of results which may
occur in the future.

|               |  |                      |         |      |  |   |         |  
|-------------- |  | -------------------- | ------- | ---- |  | - | ------- | -
|               |  |                     
|               |  | December 31,        
|               |  |                     
|               |  | 2001                 |         | 2000
|               |  |                      |         |     
|               |  |                     
|               |  | In thousands, except
|               |  | per share data      
|Total revenue  |  | $                    | 17,830  |      |  | $ | 20,747  |  
|Net loss       |  |                      | (21,187 | )    |  |   | (10,262 | )
|Loss per share |  |                      | (1.11   | )    |  |   | (1.01   | )

3. Restructuring Charges

In the fourth quarter of fiscal 2001, the Company
announced a restructuring program to downsize its organizational
structure in order to reduce its operating expenses and improve
workforce processes and efficiencies. As a result, the Company
recorded a charge of $384,000, which includes termination
benefits and related expenses of $362,000 related to a reduction
of the workforce by 23 employees and expenses of $22,000 for
abandonment of excess equipment.

A summary of the restructuring charges is as
follows (in thousands):

|                                |       |        |     |         |  |          |    |                |  |   |   |   |  |   |     |     | 
|------------------------------- | ----- | ------ | --- | ------- |  | -------- | -- | -------------- |  | - | - | - |  | - | --- | --- | 
|                                |       |        |     |         |  |          |    | Restructuring 
|                                |       | Total  |     | Noncash |  | Cash     |    | Liabilities at
|                                |       | Charge |     | Charges |  | Payments |    | December 31,  
|                                |       |        |     |         |  |          |    |               
|Workforce reductions            |       | $      | 362 |         |  | $        |   |                |  | $ |  |   |  | $ | 362 |    
|Abandonment of excess equipment |       |        | 22  |         |  |          | 22 |                |  |   |  |   |  |   |    |    
|                                |       |        |     |         |  |          |    |                |  |   |   |   |  |   |     |    
|                                | Total |        | $   | 384     |  |          | $  | 22             |  |   | $ |  |  |   | $   | 362 | 
|                                |       |        |     |         |  |          |    |                |  |   |   |   |  |   |     |    

Remaining cash expenditures relating to workforce
reduction will be paid in the first half of 2002.

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ARGONAUT TECHNOLOGIES, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

4. Investments

Investments consist of the following (in
thousands):

|                            |                  |                    |        |        |  |   |        |        | 
|--------------------------- | ---------------- | ------------------ | ------ | ------ |  | - | ------ | ------ | 
|                            |                  |                   
|                            |                  | Amortized Cost and
|                            |                  | Fair Value at     
|                            |                  | December 31,      
|                            |                  |                   
|                            |                  | 2001               |        | 2000  
|                            |                  |                    |        |       
|Money market funds          |                  | $                  | 35     |        |  | $ | 5      |       
|U.S. government obligations |                  |                    | 54,235 |        |  |   | 71,391 |       
|                            |                  |                    |        |        |  |   |        |       
|                            |                  | $                  | 54,270 |        |  | $ | 71,396 |       
|                            |                  |                    |        |        |  |   |        |       
|                           
|Reported as:                |                  |                    |        |        |  |   |        |       
|                            | Cash equivalents |                    | $      | 14,634 |  |   | $      | 37,171 | 
|                            | Investments      |                    |        | 39,636 |  |   |        | 34,225 | 
|                            |                  |                    |        |        |  |   |        |       
|                            |                  | $                  | 54,270 |        |  | $ | 71,396 |       
|                            |                  |                    |        |        |  |   |        |       

At December 31, 2001, the maturity of
investments was between one and twelve months. At
December 31, 2000, the maturity of the investments was
between one and four months.

There were no material gross realized gains or
losses from sales of securities in the periods presented.
Unrealized gains were approximately $173,000 and unrealized
losses were zero at December 31, 2001. Unrealized gains and
losses were not material at December 31, 2000.

5. Inventories

Inventories consist of the following (in
thousands):

|                |  |              |       |      |  |   |       | 
|--------------- |  | ------------ | ----- | ---- |  | - | ----- | 
|                |  |             
|                |  | December 31,
|                |  |             
|                |  | 2001         |       | 2000
|                |  |              |       |     
|Raw materials   |  | $            | 3,375 |      |  | $ | 1,693 | 
|Work in process |  |              | 658   |      |  |   | 649   | 
|Finished goods  |  |              | 63    |      |  |   | 440   | 
|                |  |              |       |      |  |   |       | 
|                |  | $            | 4,096 |      |  | $ | 2,782 | 
|                |  |              |       |      |  |   |       | 

6. Property and Equipment

Property and equipment consists of the following
(in thousands):

|                                               |  |              |        |      |  |   |        |  
|---------------------------------------------- |  | ------------ | ------ | ---- |  | - | ------ | -
|                                               |  |             
|                                               |  | December 31,
|                                               |  |             
|                                               |  | 2001         |        | 2000
|                                               |  |              |        |     
|Laboratory and office equipment                |  | $            | 5,627  |      |  | $ | 4,579  |  
|Leasehold improvements                         |  |              | 1,215  |      |  |   | 255    |  
|                                               |  |              |        |      |  |   |        |  
|                                               |  |              | 6,842  |      |  |   | 4,834  |  
|Less accumulated depreciation and amortization |  |              | (3,609 | )    |  |   | (3,091 | )
|                                               |  |              |        |      |  |   |        |  
|Property and equipment, net                    |  | $            | 3,233  |      |  | $ | 1,743  |  
|                                               |  |              |        |      |  |   |        |  

Equipment leased under capital leases is included
in laboratory and office equipment. At December 31, 2001
and 2000, equipment under capital leases was approximately
$559,000 and $1.5 million with accumulated amortization of
approximately $410,000 and $1.1 million, respectively.

7. Note Receivable from
Officer

In December 1996, an officer of the Company
borrowed $200,000 in exchange for a note secured by the
officers residence. The note and accrued interest, at a
rate of 6.31% per annum, were due at the earlier of

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ARGONAUT TECHNOLOGIES, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

December 17, 2001, disposition of the
officers residence, or at the time of separation from the
Company. At December 31, 2001, the note had been repaid and
accumulated interest charges of approximately $72,000 were
forgiven by action of the Companys Board of Directors and
recorded in Other income/ (expense) in the Consolidated
Statements of Operations.

8. Commitments

Operating and capital leases:

The Company leases its primary office and
research facilities in Foster City, California, an office
facility in Indianapolis, Indiana, and a research facility in
Tucson, Arizona as well as locations in Basel, Switzerland and
Tokyo, Japan under operating leases. The Company finances
certain laboratory and office equipment under capital leases.
Future minimum annual lease payments under all noncancelable
leases are as follows (in thousands):

|                                            |  |         |      |           |  |   |       | 
|------------------------------------------- |  | ------- | ---- | --------- |  | - | ----- | 
|                                            |  | Capital |      | Operating
|Fiscal Year                                 |  | Leases  |      | Leases   
|                                            |  |         |      |          
|2002                                        |  | $       | 200  |           |  | $ | 940   | 
|2003                                        |  |         |     |           |  |   | 982   | 
|2004                                        |  |         |     |           |  |   | 529   | 
|                                            |  |         |      |           |  |   |       | 
|Total                                       |  | $       | 200  |           |  | $ | 2,451 | 
|                                            |  |         |      |           |  |   |       | 
|Less amount representing interest           |  |         | (13  | )         |  |   |       | 
|                                            |  |         |      |           |  |   |       | 
|Present value of future lease payments      |  |         | 187  |           |  |   |       | 
|Less current portion                        |  |         | (187 | )         |  |   |       | 
|                                            |  |         |      |           |  |   |       | 
|Noncurrent obligations under capital leases |  | $       |     |           |  |   |       | 
|                                            |  |         |      |           |  |   |       | 

Rent
expense:

Rent expense under operating leases was
approximately $1.2 million, $641,000,and $511,000, in 2001,
2000, and 1999, respectively.

Royalties:

The Company has minimum royalty commitments
pursuant to a license and supply agreement. The minimum
royalties under this agreement are approximately $600,000,
$650,000 and $450,000 in 2002, 2003 and 2004, respectively.

9. Long-Term Debt

In July 1997, the Company entered into a capital
lease agreement for $1.5 million and loan agreement for
$1.5 million with a financial institution. The capital
lease and the loan have an interest rate of 10.5%. The loan was
repaid in full in August 2000. The capital lease is repayable in
48 monthly installments from the date the funds were used
for capital expenditures. The capital lease is secured by the
assets of the Company and subordinated to institutional
creditors. Under the terms of these capital lease agreements,
the Company issued warrants to purchase an aggregate 30,799
shares of common stock.

In July 1998, the Company entered into a loan
agreement (the Loan) and a receivables loan
agreement (the Receivables Loan) with a financial
institution for a total of up to $8.0 million
($4.0 million under each loan). The Loan bears interest at
rates of 11.75% to 12.5% and is repayable in 16 quarterly
installments after an initial three quarters of interest-only
payments. The Receivables Loan bears interest at prime plus 1.5%
at the time of the draw down and the average interest rate for
2000 and 1999 was 9.5% and 10.0%, respectively. The Receivables
Loan is repayable two years after the draw down and interest is
payable monthly.

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ARGONAUT TECHNOLOGIES, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

Also, under the terms of the Loan agreement, the
Company is required to issue warrants to purchase
17,600 shares of common stock for each draw down of
$1.0 million. Under the terms of the Receivables Loan
agreement, the Company is required to issue two warrants each to
purchase 14,666 shares of common stock, one on signing of the
agreement and the second if the draw down exceeds
$2.0 million. Both loans are secured by the assets of the
Company and subordinated to institutional creditors.

At December 31, 1999, the Company had drawn
down $2.0 million against the Loan line and
$2.0 million against the Receivables Loan line and issued
three warrants to purchase a total of 49,866 shares of common
stock (see Note 8). The balance of the Loan and the
Receivables Loan was repaid in August 2000. The draw period for
the Receivables Loan expired in July 2000.

In connection with the acquisition of ATSI on
March 1, 2001, the Company assumed outstanding loan
liabilities of approximately $654,000 which were repaid in full
in April 2001.

The carrying amount for the Companys
long-term and short-term debt approximated fair value at each of
balance sheet dates. The fair value of the Companys debt
was estimated using discounted cash flow analyses, based on the
Companys current incremental borrowing rate for similar
types of borrowing arrangements.

10. Stockholders Equity

Common
Stock

In March 2001, the Company issued 666,667 shares
of common stock in connection with the acquisition of ATSI.

In July 2000, the Company completed its initial
public offering of 5,290,000 shares of common stock, inclusive
of the underwriters over-allotment option, at a price of
$15.00 per share. The Company received approximately
$72.5 million in net proceeds after underwriting discounts
of $5,554,000 and other offering costs of $1,337,000. In
conjunction with the initial public offering, the Company
effected a 0.88 for one reverse stock split of the common stock.
Upon the close of the initial public offering, all of the
outstanding convertible preferred stock was automatically
converted into 0.88 shares of common stock.

Warrants

In conjunction with a capital lease line executed
in April 1995, the Company issued a warrant to purchase 44,000
shares of common stock at an exercise price of $1.36 per share.
The warrant was exercised in January 2001.

In 1997, the Company issued a series of warrants
to purchase 30,799 shares of common stock at an exercise price
of $6.82 per share in connection with the execution of a capital
lease line and a loan and security agreement (see Note 9).
These warrants expire at various dates through December 2004. At
December 31, 2001, all of these warrants were still
outstanding.

In 1998, the Company issued two warrants to
purchase a total of 32,266 shares of common stock at an exercise
price of $6.82 per share in connection with two loan agreements
entered into in July 1998 (see Note 9). These warrants
expire in July 2005. At December 31, 2001, all of these
warrants were still outstanding. The fair value of these
warrants, determined using a Black-Scholes valuation model, was
$40,699 and has been recorded as interest expense over the term
of the respective term.

In 1999, the Company issued a warrant to purchase
17,600 shares of common stock at an exercise price of $6.82 per
share in connection with a drawdown on one of their loans (see
Note 9). The warrant expires in January 2003. At
December 31, 2001, this warrant was still outstanding. The
fair value of the warrant,

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ARGONAUT TECHNOLOGIES, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

determined using the Black-Scholes valuation
model, was $22,200 and has been recorded as interest expense
over the term of the loan.

1995 Incentive
Stock Plan

The Companys 1995 Incentive Stock Plan (the
1995 Plan) provides for (i) the grant of
incentive stock options to employees, (ii) the grant of
non-statutory stock options to employees and consultants, and
(iii) the grant of stock purchase rights. A total of
3,464,179 shares of common stock have been authorized for
issuance under the 1995 Plan.

Under the terms of the 1995 Plan, the options and
purchase rights granted generally vest at a rate of 25% at the
end of the first year with the remaining balance vesting in
equal amounts over the next 36 months.

2000
Incentive Stock Plan

In April 2000, the Company adopted its 2000
Incentive Stock Plan (the 2000 Plan) and initially
reserved a total of 1,760,000 shares of common stock for
issuance. Under the terms of the 2000 Plan, the number of shares
reserved shall increase annually on the first day of the
Companys fiscal year beginning 2001 by the lessor of
(i) 1,320,000 shares, (ii) 5% of the outstanding
shares on such date or (iii) an amount determined by the
Board. The 2000 Plan provides for (i) the grant of
incentive stock options to employees, (ii) the grant of
non-statutory stock options to employees and consultants, and
(iii) the grant of stock purchase rights. The 2000 Plan
permits options and or purchase rights to be granted at an
exercise price of not less than 100% of the fair value on the
date of the grant. The vesting term of option and purchase rights

A summary of activity under the Plans is as
follows:

|                             |                              |           |           |            |   |          |           |           |   |   |      |      | 
|---------------------------- | ---------------------------- | --------- | --------- | ---------- | - | -------- | --------- | --------- | - | - | ---- | ---- | 
|                             |                              |           |           |            |   | Weighted
|                             |                              | Shares    |           |            |   | Average 
|                             |                              | Available |           | Number of  |   | Exercise
|                             |                              | For Grant |           | Options    |   | Price   
|                             |                              |           |           |            |   |         
|Balance at December 31, 1998 |                              |           | 265,610   |            |   |          | 1,425,739 |           |   | $ | 0.43 |     
|                             | Additional shares authorized |           |           | 1,320,000  |   |          |           |          |   |   |      |     | 
|                             | Options granted              |           |           | (895,490   | ) |          |           | 882,290   |   |   |      | 1.07 | 
|                             | Options exercised            |           |           |           |   |          |           | (288,920  | ) |   |      | 0.35 | 
|                             | Options canceled             |           |           | 243,592    |   |          |           | (243,592  | ) |   |      | 0.57 | 
|                             | Shares repurchased           |           |           | 990        |   |          |           |          |   |   |      | 0.06 | 
|                             |                              |           |           |            |   |          |           |           |   |   |      |     
|Balance at December 31, 1999 |                              |           | 934,702   |            |   |          | 1,775,517 |           |   |   | 0.74 |     
|                             | Additional shares authorized |           |           | 1,760,000  |   |          |           |          |   |   |      |     | 
|                             | Options granted              |           |           | (671,613   | ) |          |           | 671,613   |   |   |      | 7.16 | 
|                             | Options exercised            |           |           |           |   |          |           | (659,077  | ) |   |      | 0.49 | 
|                             | Options canceled             |           |           | 171,786    |   |          |           | (171,786  | ) |   |      | 1.61 | 
|                             |                              |           |           |            |   |          |           |           |   |   |      |     
|Balance at December 31, 2000 |                              |           | 2,194,875 |            |   |          | 1,616,267 |           |   |   | 3.42 |     
|                             | Additional shares authorized |           |           | 913,466    |   |          |           |          |   |   |      |     | 
|                             | Options granted              |           |           | (1,712,575 | ) |          |           | 1,712,575 |   |   |      | 5.34 | 
|                             | Options exercised            |           |           |           |   |          |           | (187,030  | ) |   |      | 0.88 | 
|                             | Options canceled             |           |           | 331,066    |   |          |           | (331,066  | ) |   |      | 5.87 | 
|                             |                              |           |           |            |   |          |           |           |   |   |      |     
|Balance at December 31, 2001 |                              |           | 1,726,832 |            |   |          | 2,810,746 |           |   |   | 4.52 |     
|                             |                              |           |           |            |   |          |           |           |   |   |      |     

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ARGONAUT TECHNOLOGIES, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

All options and shares were granted with exercise
prices equal to the fair value of the Companys common
stock as of December 31, 2001 as follows:

|               |  |                     |               |                     |  |          |      |           |  |          |       |  |  |  |         |  |  |   |       | 
|-------------- |  | ------------------- | ------------- | ------------------- |  | -------- | ---- | --------- |  | -------- | ----- |  |  |  | ------- |  |  | - | ----- | 
|               |  |                     |               |                     |  |         
|               |  | Options Outstanding |               |                    
|               |  |                     |               | Options Exercisable
|               |  |                     |               | Weighted            |  |          |      |          
|               |  |                     |               | Average             |  | Weighted |      |           |  | Weighted
|               |  |                     |               | Remaining           |  | Average  |      |           |  | Average 
|               |  | Number of           |               | Contractual         |  | Exercise |      | Number of |  | Exercise
|Exercise Price |  | Options             |               | Life (Years)        |  | Price    |      | Options   |  | Price   
|               |  |                     |               |                     |  |          |      |           |  |         
|$ 0.06  $ 1   |  |                     | .14 761,684   |                     |  |          | 7.02 |           |  | $        | 0.88  |  |  |  | 505,478 |  |  | $ | 0.77  | 
|$ 3.15  $ 5   |  |                     | .68 858,817   |                     |  |          | 9.11 |           |  | $        | 4.49  |  |  |  | 173,721 |  |  | $ | 5.20  | 
|$ 6.03  $ 8   |  |                     | .38 1,090,825 |                     |  |          | 9.22 |           |  | $        | 6.27  |  |  |  | 123,475 |  |  | $ | 6.41  | 
|$12.50  $20.1 |  |                     | 3 99,420      |                     |  |          | 8.78 |           |  | $        | 13.01 |  |  |  | 38,352  |  |  | $ | 13.21 | 
|               |  |                     |               |                     |  |          |      |           |  |          |       |  |  |  |         |  |  |   |       | 
|               |  |                     | 2,810,746     |                     |  |          | 8.59 |           |  | $        | 4.52  |  |  |  | 841,026 |  |  | $ | 3.18  | 
|               |  |                     |               |                     |  |          |      |           |  |          |       |  |  |  |         |  |  |   |       | 

There were 436,935 and 612,994 options
exercisable as of December 31, 2000 and 1999, respectively.

The weighted-average fair value of the stock
options granted were $5.34, $6.86, and $0.34 for the years ended
December 31, 2001, 2000 and 1999, respectively.

In 2000, the Company granted 86,592 options
outside of its options plans to certain employees and one
consultant at a weighted-average exercise price of $4.53. During
2001, 22,000 options were exercised with an exercise price of
$1.14 per share. As of December 31, 2001, 64,592 options
were still outstanding.

These outstanding options had a weighted-average
exercise price of $5.68 and a weighted-average remaining
contractual life of 8.48 years.

Pro forma information regarding net loss per
share is required by SFAS 123 as if the Company had
accounted for its employee stock options under the fair value
method of SFAS 123. The fair value of these options granted
prior to the Companys initial public offering in July 2000
was estimated at the date of grant using the minimum value
method. The fair value of stock options granted subsequent to
the initial public offering were valued using the Black-Scholes
valuation model based on the actual stock closing price on the
date of grant. The fair value of these options was estimated at
the date of grant using the following weighted-average
assumptions:

|                               |  |              |         |      |  |      |         |   |  |  |         |  
|------------------------------ |  | ------------ | ------- | ---- |  | ---- | ------- | - |  |  | ------- | -
|                               |  |             
|                               |  | December 31,
|                               |  |             
|                               |  | 2001         |         | 2000 |  | 1999
|                               |  |              |         |      |  |     
|Risk-free interest rate        |  |              | 3.82    | %    |  |      | 5.00    | % |  |  | 5.32    | %
|Dividend yield                 |  |              |        |      |  |      |        |   |  |  |        |  
|Weighted-average expected life |  |              | 4 years |      |  |      | 6 years |   |  |  | 7 years |  
|Volatility                     |  |              | 0.87    |      |  |      | 0.90    |   |  |  |        |  

For purposes of pro forma disclosures, the
estimated fair value of the options is amortized to expense over
the vesting period of the options. The Companys pro forma
information follows (in thousands):

|                                      |             |                          |   |         |   |      |   |        |   |  |   |        |  
|------------------------------------- | ----------- | ------------------------ | - | ------- | - | ---- | - | ------ | - |  | - | ------ | -
|                                      |             |                         
|                                      |             | Years Ended December 31,
|                                      |             |                         
|                                      |             | 2001                     |   | 2000    |   | 1999
|                                      |             |                          |   |         |   |     
|Net loss:                             |             |                          |   |         |   |      |   |        |   |  |   |       
|                                      | As reported |                          | $ | (20,795 | ) |      | $ | (7,521 | ) |  | $ | (7,603 | )
|                                      | Pro forma   |                          | $ | (21,752 | ) |      | $ | (8,122 | ) |  | $ | (7,894 | )
|Basic and diluted net loss per share: |             |                          |   |         |   |      |   |        |   |  |   |       
|                                      | As reported |                          | $ | (1.09   | ) |      | $ | (0.79  | ) |  | $ | (3.55  | )
|                                      | Pro forma   |                          | $ | (1.14   | ) |      | $ | (0.85  | ) |  | $ | (3.69  | )

47



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ARGONAUT TECHNOLOGIES, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

The pro forma net loss is not necessarily
indicative of potential pro forma effects on results for future
years.

Deferred stock compensation is the difference
between the exercise price of the options and the deemed fair
value of the common stock at the date of grant. The fair value
was determined based on the business factors underlying the
value of the Companys common stock on the date of grant
viewed in light of our initial public offering and the
anticipated initial public offering price per share. The
deferred stock compensation was recorded as a component of
stockholders equity and is being amortized over the
vesting periods of the options, generally four years, using the
graded vesting method. The Company recorded deferred stock
compensation of approximately $2.8 million in the year
ended December 31, 2000 and approximately $3.8 million
in the year ended December 31, 1999 in connection with the
grant of stock options to employees. The Company has recorded
amortization of deferred stock compensation of
$1.6 million, $2.9 million, and $653,000 in the years
ended December 31, 2001, 2000 and 1999, respectively. As of
December 31, 2001, we had a total of $1.0 million to
be amortized over the remaining vesting period of the options.

In 2000, the Company granted performance based
options to certain of its employees and recorded a stock
compensation expense of $86,000 on the date the performance
criteria were met and the options were vested. At
December 31, 2001, the Company has 26,410 options subject
to performance criteria. The Company will record stock
compensation related to these options when and if they vest.

The Company has granted 22,000, 70,412, and
4,401, options to consultants in exchange for services in 2001,
2000, and 1999 respectively. The Company recorded compensation
expense related to these options of $137,000, $617,000, and
$12,000 for the year ended December 31, 2001, 2000 and 1999
respectively. In accordance with SFAS 123 and
EITF 96-18, options granted to consultants are periodically
revalued until fully vested.

2000 Employee Stock Purchase Plan

In April 2000, the Company adopted its 2000
Employee Stock Purchase Plan (the Purchase Plan) and
initially reserved a total of 176,000 shares for issuance.
Under the terms of the Purchase Plan, the number of shares
reserved shall increase annually on the first day of the
Companys fiscal year beginning in 2001 by the lesser of
(i) 440,000 shares, (ii) 2% of the outstanding shares
on such date or (iii) a lesser amount determined by the
board. The Purchase Plan permits eligible employees to purchase
common stock at a discount through payroll during defined
offering periods. The price at which the stock is purchased is
equal to the lower of 85% of the fair market value of the common
stock on the first day of the offering or 85% of the fair market
value of the Companys common stock on the purchase date.
The initial offering period commenced on November 1, 2000.
During 2001, 95,495 shares have been issued under the stock
purchase plan.

Reserved Shares

As of December 31, 2001, the Company has
reserved shares of common stock for future issuance as follows:

|                             |  |  |           | 
|---------------------------- |  |  | --------- | 
|Warrants                     |  |  | 80,665    | 
|Incentive stock plans        |  |  | 4,602,170 | 
|Employee Stock Purchase Plan |  |  | 445,905   | 
|                             |  |  |           | 
|                             |  |  | 5,128,740 | 
|                             |  |  |           | 

11. 401(k) Retirement Savings Plan

The Company maintains a 401(k) retirement savings
plan for its full-time employees. Each participant in the Plan
may elect to contribute from 1% to 20% of annual compensation to
the Plan. The Company, at its

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ARGONAUT TECHNOLOGIES, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

discretion, may make contributions to the Plan.
The Companys expenses related to the Plan have been
immaterial.

12. Income Taxes

Deferred income taxes reflect the net tax effects
of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts
used for income tax purposes. Significant components of the
Companys deferred tax assets are as follows:

|                         |                                      |                           |         |        |        |   |         |       |        | 
|------------------------ | ------------------------------------ | ------------------------- | ------- | ------ | ------ | - | ------- | ----- | ------ | 
|                         |                                      |                          
|                         |                                      | December 31,             
|                         |                                      |                          
|                         |                                      | 2001                      |         | 2000  
|                         |                                      |                           |         |       
|Deferred tax assets:     |                                      |                           |         |        |        |   |         |      
|                         | Net operating loss carryforwards     |                           | $       | 12,200 |        |   | $       | 9,200 |       
|                         | Research credits                     |                           |         | 1,500  |        |   |         | 1,100 |       
|                         | Capitalized research and development |                           |         | 1,200  |        |   |         | 1,000 |       
|                         | Non-deductible accruals and reserves |                           |         | 900    |        |   |         | 800   |       
|                         | Other                                |                           |         | 1,500  |        |   |         | 800   |       
|                         |                                      |                           |         |        |        |   |         |      
|                         |                                      | Total deferred tax assets |         |        | 17,300 |   |         |       | 12,900 | 
|                         |                                      |                           |         |        |        |   |         |      
|Valuation allowance      |                                      |                           | (17,300 | )      |        |   | (12,900 | )    
|                         |                                      |                           |         |        |        |   |         |      
|Net deferred tax assets: |                                      | $                         |        |        |        | $ |        |      
|                         |                                      |                           |         |        |        |   |         |      

Realization of deferred tax assets is dependent
upon future earnings, if any, the timing and amount of which are
uncertain. Accordingly, the net deferred tax assets have been
fully offset by a valuation allowance. The valuation allowance
increased by $4,400,000 and $2,400,000 during 2001 and 2000
respectively.

As of December 31, 2001, the Company had net
operating loss carryforwards for federal income tax purposes of
approximately $36,000,000, which expire in the years 2010
through 2021 and federal research and development tax credits of
approximately $900,000, which expire in the years 2012 through
2021.

Utilization of the Companys net operating
loss may be subject to substantial annual limitation due to the
ownership change limitations provided by the Internal Revenue
Code and similar state provisions. Such an annual limitation
could result in the expiration of the net operating loss before
utilization.

13. Market Sales, Export Sales, and
Significant Customers

The Company has determined that it operates in
only one segment in accordance with SFAS No. 131,
Disclosures about Segments of an Enterprise and Related
Information (SFAS 131) as it only reports
profit and loss information on an aggregate basis to its chief
operating decision maker.

The Company had net sales by market as follows
(in thousands):

|            |  |                          |        |      |  |      |        |  |  |   |        | 
|----------- |  | ------------------------ | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|            |  |                         
|            |  | Years Ended December 31,
|            |  |                         
|            |  | 2001                     |        | 2000 |  | 1999
|            |  |                          |        |      |  |     
|Instruments |  | $                        | 11,151 |      |  | $    | 13,054 |  |  | $ | 7,572  | 
|Consumables |  |                          | 4,130  |      |  |      | 3,762  |  |  |   | 2,438  | 
|Services    |  |                          | 1,782  |      |  |      | 633    |  |  |   | 548    | 
|            |  |                          |        |      |  |      |        |  |  |   |        | 
|            |  | $                        | 17,063 |      |  | $    | 17,449 |  |  | $ | 10,558 | 
|            |  |                          |        |      |  |      |        |  |  |   |        | 

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ARGONAUT TECHNOLOGIES, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

The Company had net sales by geographical region
as follows (in thousands):

|                             |  |                          |        |      |  |      |        |  |  |   |        | 
|---------------------------- |  | ------------------------ | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                             |  |                         
|                             |  | Years Ended December 31,
|                             |  |                         
|                             |  | 2001                     |        | 2000 |  | 1999
|                             |  |                          |        |      |  |     
|US                           |  | $                        | 11,739 |      |  | $    | 12,981 |  |  | $ | 6,472  | 
|Europe                       |  |                          | 2,842  |      |  |      | 2,128  |  |  |   | 2,687  | 
|Far East (principally Japan) |  |                          | 2,482  |      |  |      | 2,340  |  |  |   | 1,399  | 
|                             |  |                          |        |      |  |      |        |  |  |   |        | 
|                             |  | $                        | 17,063 |      |  | $    | 17,449 |  |  | $ | 10,558 | 
|                             |  |                          |        |      |  |      |        |  |  |   |        | 

No single customer accounted for more than 10% of
total net sales during 2001, 2000, and 1999.

Net sales are attributed to countries based on
the location of the customer.

14. Unaudited Quarterly Data

|                                    |  |                                       |         |               |  |          |        |           |  |              |        |               |  |          |        |           |  |   |        |   |  |   |        |   |  |   |        |   |  |   |        |  
|----------------------------------- |  | ------------------------------------- | ------- | ------------- |  | -------- | ------ | --------- |  | ------------ | ------ | ------------- |  | -------- | ------ | --------- |  | - | ------ | - |  | - | ------ | - |  | - | ------ | - |  | - | ------ | -
|                                    |  | December 31,                          |         | September 30, |  | June 30, |        | March 31, |  | December 31, |        | September 30, |  | June 30, |        | March 31,
|                                    |  | 2001                                  |         | 2001          |  | 2001     |        | 2001      |  | 2000         |        | 2000          |  | 2000     |        | 2000     
|                                    |  |                                       |         |               |  |          |        |           |  |              |        |               |  |          |        |          
|                                    |  |                                      
|                                    |  | (In thousands, except per share data)
|Net sales                           |  | $                                     | 5,618   |               |  | $        | 3,583  |           |  | $            | 3,069  |               |  | $        | 4,793  |           |  | $ | 5,290  |   |  | $ | 4,532  |   |  | $ | 4,063  |   |  | $ | 3,564  |  
|Gross profit                        |  |                                       | 2,315   |               |  |          | 1,619  |           |  |              | 1,227  |               |  |          | 2,471  |           |  |   | 2,717  |   |  |   | 2,374  |   |  |   | 2,199  |   |  |   | 2,165  |  
|Loss from operations                |  |                                       | (10,430 | )             |  |          | (4,305 | )         |  |              | (5,169 | )             |  |          | (3,570 | )         |  |   | (2,356 | ) |  |   | (2,368 | ) |  |   | (2,670 | ) |  |   | (2,027 | )
|Net loss                            |  |                                       | (9,887  | )             |  |          | (3,722 | )         |  |              | (4,539 | )             |  |          | (2,647 | )         |  |   | (1,194 | ) |  |   | (1,595 | ) |  |   | (2,715 | ) |  |   | (2,017 | )
|Net loss per share, basic & diluted |  | $                                     | (0.51   | )             |  | $        | (0.19  | )         |  | $            | (0.24  | )             |  | $        | (0.14  | )         |  | $ | (0.07  | ) |  | $ | (0.11  | ) |  | $ | (1.02  | ) |  | $ | (0.86  | )

15. Subsequent Events (Unaudited)

On February 20, 2002, the Company completed
the acquisition of Jones Group for purchase consideration of
572,152 unregistered shares of Argonauts common stock,
$5,431,500 (£3,825,000) cash due at closing, and notes
payable aggregating $10,863,000 (£7,650,000) payable over
two years, plus acquisition related legal, accounting, due
diligence and other transaction expenses. In addition, certain
employees of Jones Group that remain as employees after the
transaction will receive stock options to purchase an aggregate
349,800 shares of the Companys common stock. The Company
will utilize the purchase method of accounting for this
transaction.

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Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure

There have been none.




PART III

Item 10.  Directors and Executive
Officers of the Registrant

Executive Officers of the Registrant

The additional information required by this
Item 10 is incorporated by reference from our Proxy
Statement to be filed in connection with our annual meeting of
stockholders to be held on June 6, 2002. The following
table sets forth certain information regarding our executive
officers as of February 25, 2002:

|                       |  |     |    |          |  |                                                      
|---------------------- |  | --- | -- | -------- |  | -----------------------------------------------------
|Name                   |  | Age |    | Position
|                       |  |     |    |         
|Lissa A. Goldenstein   |  |     | 46 |          |  | President, Chief Executive Officer and Director      
|Howard D. Goldstein    |  |     | 49 |          |  | Sr. Vice President, Sales, Marketing and Service     
|Jan K. Hughes          |  |     | 41 |          |  | Sr. Vice President, Chief Technical Officer          
|John T. Supan          |  |     | 51 |          |  | Vice President, Finance and Chief Financial
	Officer 
|Jeff W. Labadie, Ph.D. |  |     | 46 |          |  | Vice President, Chemistry                            
|Gordon B. Tredger      |  |     | 42 |          |  | Vice President, Instruments and Integration
	Services

Lissa A. Goldenstein, President, Chief
Executive Officer and Director

Ms. Goldenstein has served as our President
and Chief Executive Officer since October 2001. In April 2001,
she was elected as a member of our board of directors. She also
served as President and Chief Operating Officer from April 2001
to October 2001 and as Sr. Vice President and Chief Business
Officer from August 2000 to April 2001. Ms. Goldenstein
joined Argonaut in January 1998 as the Vice President of Sales
and was responsible for sales, service and technical support
activities worldwide. Prior to joining Argonaut,
Ms. Goldenstein was senior vice president of worldwide
sales and marketing with Molecular Simulations Incorporated from
October 1994 to August 2000, where she directed the worldwide
sales and global marketing communications program. In addition,
Ms. Goldenstein was president and CEO of the Teijin and MSI
Joint Venture (TMSI) where she managed Japan and Asia Pacific
business. Ms. Goldenstein also directed sales activities
for McDonnell Douglas Corporation, providing system software
solutions for manufacturing and engineering.
Ms. Goldenstein has a B.S. in Architectural Engineering
from Pennsylvania State University and received her Professional
Engineers license as a civil engineer in the State of California
in 1981.

Howard D. Goldstein, Senior Vice President,
Sales, Marketing and Service

Mr. Goldstein has served as our Senior Vice
President of Sales, Marketing and Service since December 2001.
Between June 1999 to November 2001, Mr. Goldstein served as
president of Entigen Corporation, a developer of on-line
bioinformatics and data integration software for life science
companies. Prior to Entigen from June 1997 to June 1999, he
served as senior vice president for worldwide sales at Incyte
Genomics. Prior to Incyte, Mr. Goldstein served in various
organizations focusing on organizing and managing their sales
and marketing efforts including serving as vice president of
worldwide sales and marketing at Molecular Devices Corporation.
He also served in various sales and marketing management
positions for Molecular Dynamics, Applied Biosystems and LKB
Instruments at early stages of their market development.
Mr. Goldstein received his M.B.A. in Organization &
Management from Temple University, Philadelphia, PA in 1983 as
well as a M.S. in Biochemistry from the University of Dayton,
Dayton, OH in 1978 and B.S. in Biology from Bucknell University,
Lewisburg, PA (1975).

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Jan K. Hughes, Senior Vice President &
Chief Technical Officer

Mr. Hughes was a founding member of Argonaut
Technologies in November 1994 and was promoted to Sr. Vice
President and Chief Technical Officer in August 2000. As the
Chief Technical Officer, Mr. Hughes is responsible for the
identification of strategic product opportunities in addition to
new technologies, investigates and assesses potential merger and
acquisitions and establishes strategic relationships with
customers and collaborators for the Company. Before starting at
Argonaut, for 10 years Mr. Hughes served as the group
leader for new synthesis systems at Applied Biosystems, Inc. He
was responsible for product development of all peptide and
nucleic acid synthesis instrumentation. Mr. Hughes received
a B.S. in mechanical engineering from California Polytechnic
State University.

John T. Supan, Vice President, Finance &
Chief Financial Officer

Mr. Supan has served as our Vice President,
Finance and Chief Financial Officer since May 2000. From
September 1997 to May 2000, Mr. Supan served an independent
consultant and then as a director with Azia Core, Ltd, a
privately held consulting and investment firm working with
clients in the high tech and biopharmaceutical industries. From
1992 through 1997, he was vice president of finance and CFO for
Beacon Diagnostics. Mr. Supan joined Ernst & Young LLP,
a public accounting firm, in September 1976 as a staff
accountant, was named a partner in October 1986, and left in
1991 to pursue industry experience. Mr. Supan received his B.S.
degree in Business Administration from California State
University, San Jose and is a Certified Public Accountant.

Mr. Supan will resign his position as Vice
President, Finance and Chief Financial Officer at the earlier of
March 31, 2002 or the filing of this Annual Report on
Form 10-K. Ms. Goldenstein will serve as Acting Chief
Financial Officer during the transition until a successor is
named. During the transition, we will engage a consultant to
provide guidance and advice to Ms. Goldenstein and the company
regarding the companys financial operations and
integration plans with Jones Group.

Jeff W. Labadie, Ph.D, Vice President,
Chemistry

Dr. Labadie joined Argonaut in April 1995.
Prior to joining Argonaut, Dr. Labadie held a variety of
positions at IBMs Almaden Research Center, most recently
as manager of polymer dielectrics, where he was responsible for
designing, synthesizing and processing new polymers to meet
their electronic packaging needs. Dr. Labadie received his
Ph.D. in organic chemistry from Colorado State University.

Gordon B. Tredger, Vice President, Instruments
and Integration Services

Mr. Tredger has served as our Vice President
of Instruments and Integration Services since February 2002. In
this role, Mr. Tredger is responsible for instrument and
software product development and manufacturing and for our
Professional Services Group based in Indianapolis, IN. From
October 1999 to January 2002, Mr. Tredger was the General
Manager of the Food Analysis business unit of PerkinElmer
Instruments. Prior to this position from June 1998 to October
1999, he was a Director of Photovac Incorporated based in
Toronto, Canada, which was subsequently purchased by PerkinElmer
in 1995. At the time of the acquisition, Mr. Tredger was
the Vice President of Operations between June 1996 to June 1998.
Mr. Tredger received a Bachelor of Arts from the University
of Toronto.

Our officers serve at the discretion of the Board
of Directors. There is no family relationship between any
director or executive officer.

Section 16(a) Beneficial Ownership
Compliance

Section 16(a) of the Securities Exchange Act
of 1934 (the Exchange Act) requires the
Companys executive officers and directors, and persons who
own more than ten percent of a registered class of the
Companys equity securities to file reports of ownership
and changes in ownership with the SEC. Executive officers,
directors and greater than ten percent stockholders are required
by SEC regulation to furnish the Company with copies of all
Section 16(a) forms they file. Based solely on its review
of the copies of such

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forms received by it, or written representations
from certain reporting persons that no reports were required to
be filed for them for fiscal year 2001, the Company believes
that, during fiscal year 2001, all filing requirements
applicable to its executive officers and directors were complied
with, except that Douglas Heigel, the Companys former Vice
President of Manufacturing, filed a Form 5 on
February 14, 2002 reporting two stock sales which should
have been reported on a Form 4 filed by September 10,
2001.





Item 11.  Executive
Compensation

The information required by this Item 11 is
incorporated by reference from our Proxy Statement to be filed
in connection with our annual meeting of stockholders to be held
on June 6, 2002.




Item 12.  Security Ownership of
Certain Beneficial Owners and Management

The information required by this Item 12 is
incorporated by reference from our Proxy Statement to be filed
in connection with our annual meeting of stockholders to be held
on June 6, 2002.




Item 13. Certain Relationships and
Related Transactions

The information required by this Item 13 is
incorporated by reference from our Proxy Statement to be filed
in connection with our annual meeting of stockholders to be held
on June 6, 2002.




PART IV




Item 14. Exhibits, Financial
Statements, Schedules and Reports on Form 8-K

(a) The following documents are filed as
part of this Form 10-K:

(1) Financial Statements

(2) Financial Statement Schedule

The following financial statement schedule of
Argonaut Technologies, Inc. for each of the past three years in
the period ended December 31, 2001 should be read in
conjunction with the Consolidated Financial Statements of
Argonaut Technologies, Inc.

Schedule II  Valuation and
Qualifying Accounts

Allowance for Doubtful Accounts (in
thousands)


|                             |  |            |    |                  |  |            |     |            |  |  |   |  |  |   |     | 
|---------------------------- |  | ---------- | -- | ---------------- |  | ---------- | --- | ---------- |  |  | - |  |  | - | --- | 
|                             |  | Balance at |    | Additions        |  |            |     | Balance at
|                             |  | Beginning  |    | Charged to Costs |  | Deductions |     | End of    
|                             |  | of Period  |    | and Expenses     |  | Writeoffs  |     | Period    
|                             |  |            |    |                  |  |            |     |           
|Year Ended December 31, 1999 |  | $          | 50 |                  |  |            |    |            |  |  |  |  |  | $ | 50  | 
|Year Ended December 31, 2000 |  | $          | 50 |                  |  |            |    |            |  |  |  |  |  | $ | 50  | 
|Year Ended December 31, 2001 |  | $          | 50 |                  |  |            | 104 |            |  |  |  |  |  | $ | 154 | 

All other schedules have been omitted since the
required information is not present in amounts sufficient to
require submission of the schedule or because the information
required is included in the financial statements or notes
thereto.

(3) Exhibits:

|       |       |                         |  |                                                                                  
|------ | ----- | ----------------------- |  | ---------------------------------------------------------------------------------
|Number |       | Description of Document
|       |       |                        
|       | 3.1*  |                         |  | Amended and Restated Certificate of Incorporation
	of the Registrant.            
|       | 3.2*  |                         |  | Bylaws of Registrant.                                                            
|       | 10.1* |                         |  | Amended and Restated Stockholder Rights
	Agreement, dated May 21, 1999.          
|       | 10.2* |                         |  | Offer Letter, dated October 29, 1996, from
	Registrant to David P. Binkley, Ph.D.

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|       |       |                         |  |                                                                                                                        
|------ | ----- | ----------------------- |  | -----------------------------------------------------------------------------------------------------------------------
|Number |       | Description of Document
|       |       |                        
|       | 10.3* |                         |  | Promissory Note Secured by Deed of Trust between
	the Registrant and David P. Binkley, dated December 17,
	1996.       
|       | 10.4* |                         |  | Lease Agreement between the Registrant and
	Tanklage Family Partnership, dated July 9, 1999.                           
|       | 10.5* |                         |  | Lease Agreement between the Registrant and MK
	Kojimachi Building Co., Ltd., dated September 16, 1997, as
	amended.    
|       | 10.6* |                         |  | Lease Agreement between the Registrant and
	Personalvorsorgestiftung Rapp AG, dated April 16, 1997.                    
|       | 10.7* |                         |  | License and Supply Agreement between the
	Registrant and Symyx Technologies, Inc., dated August 6,
	1999.              
|       | 10.8* |                         |  | Manufacturing Agreement between the Registrant
	and Merck, Inc. dated June 24, 1997, as amended.                       
|       | 10.9* |                         |  | Form of Indemnification Agreement between the
	Registrant and each of its directors and officers.                      
|       | 10.10 | *                       |  | 1995 Stock Plan.                                                                                                       
|       | 10.11 | *                       |  | 1995 Stock Plan Form of Stock Option Agreement.                                                                        
|       | 10.12 | *                       |  | 2000 Stock Incentive Plan.                                                                                             
|       | 10.13 | *                       |  | 2000 Employee Stock Purchase Plan.                                                                                     
|       | 10.14 |                         |  | Amendment to License and Supply Agreement between
	the Registrant and Symyx Technologies, Inc., dated
	January 1, 2002.
|       | 10.15 |                         |  | Agreement between the Registrant and David P.
	Binkley dated December 5, 2001.                                         
|       | 10.16 |                         |  | Agreement between the Registrant and John T.
	Supan dated January 10, 2002.                                            
|       | 21.1* | *                       |  | Subsidiaries of the Registrant.                                                                                        
|       | 23.1  |                         |  | Consent of Ernst & Young LLP, Independent
	Auditors.                                                                   
|       | 24.1  |                         |  | Power of Attorney (see Form 10-K signature
	page).                                                                     




|   |                                                                                                                                                                                        
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*  | Incorporated by reference from our registration
	statement on Form S-1, registration number 333-35782,
	declared effective by the Securities and Exchange Commission on
	July 18, 2000.
|  
|** | Incorporated by reference from our Form 10-K
	filed with the Securities and Exchange Commission on
	April 2, 2001.                                                                     

(b) Reports on Form 8-K

None.

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SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Exchange Act, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.



| |                            
| | ---------------------------
| | ARGONAUT TECHNOLOGIES, INC.



| |     |                         
| | --- | ------------------------
| | By: | /s/ LISSA A. GOLDENSTEIN

| |                                       
| | --------------------------------------
| |                                       
| | Lissa A. Goldenstein                  
| | President and Chief Executive
	Officer

Dated: March 29, 2002

POWER OF ATTORNEY

Pursuant to the requirements of the Exchange Act,
this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.

|                                                           |  |                                                                       |  |               
|---------------------------------------------------------- |  | --------------------------------------------------------------------- |  | --------------
|Signature                                                  |  | Title                                                                 |  | Date          
|                                                           |  |                                                                       |  |               
|/s/ LISSA A. GOLDENSTEINLissa A. Goldenstein               |  | Chief Executive Officer, Director (Principal
	Executive Officer)      |  | March 29, 2002
|                                                          
|/s/ JOHN T. SUPANJohn T. Supan                             |  | Chief Financial Officer (Principal Financial and
	Accounting Officer) |  | March 29, 2002
|                                                          
|/s/ BROOK H. BYERSBrook H. Byers                           |  | Director                                                              |  | March 29, 2002
|                                                          
|Hingge Hsu, M.D.                                           |  | Director                                                              |  | March 29, 2002
|                                                          
|/s/ BRIAN METCALF, PH.D.Brian Metcalf, Ph.D.               |  | Director                                                              |  | March 29, 2002
|                                                          
|/s/ WILLIAM R. RASTETTER, PH.D.William R. Rastetter, Ph.D. |  | Director                                                              |  | March 29, 2002
|                                                          
|/s/ PETER MACINTYREPeter Macintyre                         |  | Director                                                              |  | March 29, 2002
|                                                          
|/s/ DAVID P. BINKLEY, PH.D.David P. Binkley, Ph.D.         |  | Chairman, Director                                                    |  | March 29, 2002

55



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EXHIBIT INDEX

|       |        |                         |  |                                                                                                                        
|------ | ------ | ----------------------- |  | -----------------------------------------------------------------------------------------------------------------------
|Number |        | Description of Document
|       |        |                        
|       | 3.1*   |                         |  | Amended and Restated Certificate of Incorporation
	of the Registrant.                                                  
|       | 3.2*   |                         |  | Bylaws of Registrant.                                                                                                  
|       | 10.1*  |                         |  | Amended and Restated Stockholder Rights
	Agreement, dated May 21, 1999.                                                
|       | 10.2*  |                         |  | Offer Letter, dated October 29, 1996, from
	Registrant to David P. Binkley, Ph.D.                                      
|       | 10.3*  |                         |  | Promissory Note Secured by Deed of Trust between
	the Registrant and David P. Binkley, dated
	December 17, 1996.       
|       | 10.4*  |                         |  | Lease Agreement between the Registrant and
	Tanklage Family Partnership, dated July 9, 1999.                           
|       | 10.5*  |                         |  | Lease Agreement between the Registrant and MK
	Kojimachi Building Co., Ltd., dated September 16, 1997, as
	amended.    
|       | 10.6*  |                         |  | Lease Agreement between the Registrant and
	Personalvorsorgestiftung Rapp AG, dated April 16, 1997.                    
|       | 10.7*  |                         |  | License and Supply Agreement between the
	Registrant and Symyx Technologies, Inc., dated August 6,
	1999.              
|       | 10.8*  |                         |  | Manufacturing Agreement between the Registrant
	and Merck, Inc. dated June 24, 1997, as amended.                       
|       | 10.9*  |                         |  | Form of Indemnification Agreement between the
	Registrant and each of its directors and officers.                      
|       | 10.10* |                         |  | 1995 Stock Plan.                                                                                                       
|       | 10.11* |                         |  | 1995 Stock Plan Form of Stock Option Agreement.                                                                        
|       | 10.12* |                         |  | 2000 Stock Incentive Plan.                                                                                             
|       | 10.13* |                         |  | 2000 Employee Stock Purchase Plan.                                                                                     
|       | 10.14  |                         |  | Amendment to License and Supply Agreement between
	the Registrant and Symyx Technologies, Inc., dated
	January 1, 2002.
|       | 10.15  |                         |  | Agreement between the Registrant and David P.
	Binkley dated December 5, 2001.                                         
|       | 10.16  |                         |  | Agreement between the Registrant and John T.
	Supan dated January 10, 2002.                                            
|       | 21.1** |                         |  | Subsidiaries of the Registrant.                                                                                        
|       | 23.1   |                         |  | Consent of Ernst & Young LLP,
	Independent Auditors.                                                                   
|       | 24.1   |                         |  | Power of Attorney (see Form 10-K signature
	page).                                                                     




|  |                                                                                                                                                                                        
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Incorporated by reference from our registration
	statement on Form S-1, registration number 333-35782,
	declared effective by the Securities and Exchange Commission on
	July 18, 2000.



|   |                                                                                                                   
|-- | ------------------------------------------------------------------------------------------------------------------
|** | Incorporated by reference from our Form 10-K
	filed with the Securities and Exchange Commission on
	April 2, 2001.